Government corruption and the entry strategies of multinationals
It is a fact the governments of most countries worldwide are corrupt in one way or another and they always have their own unique features of the corruption which varies from country to country. Business is deeply affected by this corruption from government to government as they always have to try and fit in the various environments where their businesses are conducted in order to have their businesses run in a country. It becomes even more challenging for Multinational enterprises because they have to come into the local environment and try to adapt onto the already existing system of doing things. This means that they have to mix and fuse into the governments of the countries in which they are conducting their new branches of their already established business. Since the government officials in these countries are corrupt in one way or another, they always have their own ways of doing things when it comes to granting the chance to the incoming multinational enterprises to conduct business officially. It is also known that most of these government officials will always demand very hefty sums of money in order to allow these businesses to commence operations. In most of the circumstances the businesses have no options to explore other than to comply because this is the only way they can get to penetrate into the new markets. Some other officials can demand to have a share in the multinational entity’s local branch or unit so that they can always share in the gains the entity makes out of doing business in that particular country.
Because there is always too much at stake and since businesses have to run for life to continue moving, it becomes absolutely difficult for the multinationals in question to find the best way to approach these challenges. Definitely, there are often those multinational enterprises which are used to this kind of scenarios and normally they would have no problem getting into the corrupt systems of these governments. They therefore feel comfortable offering bribes to the officials or promising them big gains as the business gets to succeed in that particular country. However, it becomes extremely difficult for the multinational enterprises with strong business ethics that do not allow any form of corruption to find its way into their companies. They therefore do their best to follow the system of the concerned country to the latter without taking any corruption short cuts with the hope of making it through. The disadvantage with this kind of approach is that the deals tend to take so long and sometimes they may end up not being successful. This implies that all the resources they will have used to initiate this process will definitely become a waste if care is not taken to track the money on every step of the deals. Such companies believe that they can still be able to pass the walls of corruption and get to the other side untainted. Unfortunately, this never happens and so these are the firms with unfinished businesses as far as getting started in new countries is concerned. The consequences are very severe because this implies that any well meaning and ambitious multinational enterprise will never get the chance to utilize local resources and effectively create opportunities for the population; hence improving the standards of living.
This condition of corruption and its effect on different categories of multinationals cannot be ignored especially by the business leaders and owners of the various multinational businesses if at all they must continue to perform within an extended scope. There has to be a way therefore, an entry strategy through which the enterprises will find the most optimum alternative of entering new countries and also the maintenance of standard relationship with the powers that be. Rodriguez, Uhlenbruck and Eden (2005) have explored this area in depth especially by looking at the best approach that the multinational companies can use when making entry into new countries to venture into new opportunities. They have used institutional theory which according to them provides a theoretical explanation for Multinational Enterprises’ modes of responses to the actions of governments. This model gives weight to contextual factors that influence the modes of entry and decisions that accompany these modes which will also be adjusted from country to country (Yiu & Makino, 2001). They develop a framework that outlines the mode of differentiating corruption in different countries and go ahead to make propositions based on methods of entries with decisions made for adaptability to various corrupt governments and then proceed to give deep analysis of the framework.
The two dimensional framework is based on pervasiveness and arbitrariness. Arbitrariness in this case is derived from some form of commonly existing uncertainty which is statistical in nature and through quantifiable elements of risk in an environment of outcomes that can be known. There is also what can be refereed to as immeasurable uncertainty where the probability of the expected events is unknown, meaning that it will have to be deciphered or interpreted in given ways so as not to confuse with the cases of certainty from government to government(Rodriguez, Uhlenbruck & Eden, 2005). One good example of a demonstration and existence of arbitrary corruption was displayed by Russia especially in the 1990s, whereby after the fall of the soviet state, the reformers in Russia had the slogan of freedom before rulers. There was a vacuum in institutional composition and this forced the newly elected corrupt officials out, and later the organization of questionable rackets to offer protection, in the case of bureaucrats of venal standards (Hoffman, 2002; Peng, 2001). The resultant effect was that there was extreme increase in corruption and one that demonstrated the presence of and activity of arbitrary power, seriously based on individual whims.
Notably, the two dimensions of corruption in this framework are extremely independent of each other and fundamentally, they have quite different and distinct aspects of corruption. However, the main stumbling block that comes out clearly into perspective is the fact that none of the dimensions actually does a lot in as far as sufficient classification of the local environment of operation is concerned in matters related to entry and corruption. This therefore gives the crucial performance implication that these dimensions have got exclusive experience with necessary features in any operating environment and this makes them vital in any consideration at the point of entry. It is therefore imperative to have them all considered. In other words, these dimensions do demonstrate that firms will always find themselves in the process of approaching extremely corrupt officials of the governments. As they get deeper into the approaching stages, the environment of approach becomes even more and more complicated and filled with components that become hard to understand.
It becomes all the more saddening when the concerned firms hit the mark of confusion, where nothing seems to move because of the ambiguous environment. Disappointment becomes even deeper when the firms in question come to the realization that officials of government were not actually interested in the long term progress of the business but rather they are concerned about the memento gains then soon divert. There are opportunities that are designed to make full utilization of corruption and equally so for the cost implications in the context of choosing to get off the strings of corruption of the given country. It is indeed a fact that corruption affects the economy of a country negatively besides reducing the level of direct firm investment from the affected MNEs due to the complexity of a corruption-prone environment. Corruption will also affect the attitudes of international firms that would have found it appropriate to invest in a given country. Evidently, there have been cases where heavily corrupt countries especially in Africa have repelled many foreign investors who have shown genuine interests in investing in the various countries’ resources (Mauro, 1995).
However, there is an observable trend that many firms will make the decision to enter a country where corruption is an issue. They only take time to explore and analyze through research on the overall impact of the corruption on their profitability. Should the corresponding profitability go high, so does the confidence to get in and invest regardless of the existence of corruption. The firms are more focused on profit and their first challenge will always be to the corrupt authorities. One emerging element is that any well established, large MNE must be in a position to develop strategies that can effectively deal with the corruption cases with an aim to fully discourage them. For instance in the case of pervasiveness corruption, where the extent of corruption is so much diffused, the representative units of MNEs are at higher chances and risks of complying with the affected governments that are openly corrupt. In such an environment, they will be required to succumb to bribe submission to the affected government officials. Expectedly, these are the firms that such corrupt governments are likely to term as legally compliant and so fit to conduct business in that country.Consequntly the MNE network outside the victim(compliant firm) will be impacted negatively thus creating what is commonly known as ‘institutional distance’, which is dangerous for business in the long term(Kostova & Zaheer, 1999).
Corruption is rife in many countries and is very hard to deny that businesses especially the Multi National Enterprises will always find themselves trapped in difficult conditions trying to make entries into countries where corruption is the order of the day. While the general norms and tenets of operation in any business environment, whether by government or private in structure dictates that corruption should be discouraged to the true meaning of it, several governments do the exact opposite. They see the MNEs as goldmines where they can manage to scoop some good amounts of bribes as a pre-requisite to according these businesses the authority to operate in the local environment. Most of the MNEs on the other hand are also aware that they should always practice sound business ethics, ever refraining from actions of corruption.
In conclusion, it has become extremely hard and challenging to ignore fully the crooked traditions of corruption that will be displayed by the existing governments of the day in different countries. Because these firms have to continue conducting business, it becomes inevitable that they must comply with what the corrupt officials stipulate in terms of requirements. This therefore calls for entry strategies for the MNEs so that they get into the new business environments; having all their facts right and aware of which moves to make in order to get the go a head. The two dimensional approach is rightly applicable since it gives the opportunity to use two independent approaches simultaneously.