This My Research: Charlie Stevens - Avoid, acquiesce … or Engage? How to Manage Corruption Abroad

This is Charlie Stevens' research published in the Strategic Management Journal. The paper is called: "Avoid, acquiesce … or engage? New insights from sub-Saharan Africa on multinational enterprises' strategies for managing corruption" by Charles E. Stevens - Lehigh University and Aloysius Newenham-Kahindi - University of Victoria.

Learn more about Charlie Stevens and his research.

What follows is a complete transcript of the video.

 

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CHARLIE STEVENS: One of the biggest issues that multinational firms encounter when they invest overseas, especially in developing countries, is the issue of corruption. We have a large literature on how corruption affects the strategies and the performance of multinational firms, for example, affecting their location choice or their choice of entry mode, but we still don't know that much about how multinationals manage corruption itself in large firms. Because it is, in many cases, an illegal and illicit activity, it can be hard to gain information, especially at the firm level, in terms of what firms do when they encounter relating to corruption. And what we do know, in many cases, is based on the experiences and the perspectives of firms from developed countries like the US or regions like the European Union.

What we do in this paper is we really set out to try and better understand how firms manage corruption and we do so by examining both developed-country firms as well as developing-country firms, from countries like China and India and Vietnam, to really understand if there are differences in terms of how these firms manage corruption. We take an inductive, qualitative approach in the very dynamic and fast-growing region of East and Central Africa, a place where there is quite a bit of variance in terms of corruption and economic development. And as a result of our-- we conducted over 400 interviews with expatriate managers and government officials, with many different experts in the field, to really grasp how firms manage corruption.

And as a result of doing so, we gained new insights. And in particular, we learned about a new strategy that is new to the literature, that was being pioneered by developing-country firms, and Chinese firms in particular, that was counter-intuitive and marked a different way for managing corruption that has been found in the existing literature.

When we explored the strategies of firms coming from developed countries for managing corruption, we found that, in many cases, that they felt that they had two main options at their disposal, options that we called acquiescence and avoidance strategies. Acquiescence strategies were where firms basically felt that they had no choice but to engage in corrupt activities, pay bribes, grease money, so forth, when investing in countries where corruption was more pervasive.

On the other hand, we found firms following avoidance strategies where they either would simply not invest in countries where corruption was perceived to be a problem or, if they did invest, they tended to tread lightly by investing using entry modes that involved lower equity stakes or, otherwise, just not having a very large investment or stake in the host country. The problem is that, for most firms that followed either of these strategies, they were seen as imperfect solutions.

So firms that did give in and pay bribes and engage in corrupt activities, they recognized that they were engaging the activity that was, in many cases, illegal in their home or their host country, it would be perceived as immoral and unethical in their home countries and even in their host country as well, where people were, understandably, I think, upset when multinationals were coming in and perceived as paying bribes and engaging in illicit activity. But on the other hand, avoidance strategies usually meant the firms had to pass on otherwise valuable opportunities. It's really hard to get a foothold in a country if you don't really have a large stake in that area. And frankly, sometimes it can be hard to win a tender or do business in places by just saying no if there was the expectation of a bribe.

What we found to be interesting was when we started to really dive into the strategies that were being undertaken by developing-country multinational firms for managing corruption. So again, the literature suggests that maybe these firms might have different approaches to managing corruption as many of them come from home countries where corruption is more of an issue. But we really, in the literature, don't have a really firm understanding of what those strategies would entail or what they look like.

And what we found is that in the last-- really, since about 2012 or so, within the last decade, a number of developing country firms, many of them from China, were taking a different approach that we termed an engagement strategy that, in many ways, was unexpected and counter-intuitive because it tended to involve greater commitment, greater investment to countries where there was more corruption.

Not saying that these firms sought those countries out, but they were less deterred from entering into these locations. And then, when we looked into this, we were, of course, curious, "Okay. Are they just less concerned about corruption because they're paying bribes and just getting their hands dirty?" But that didn't seem to be the case - that's not what we found, at least - that many of these firms were following rather interesting and complex strategies, many that involved multiple actors that were designed at minimizing the ability of host-country actors to request bribes by maximizing their bargaining power or by minimizing, really, the motivation of host-country actors to request bribes by increasing their legitimacy.

So firms could do this by a number of different ways. So for example, firms could increase their legitimacy by not just investing in business activities, for example, mining or manufacturing, but also engaging in building hospitals or schools and really making sure that their presence was seen as benefiting society more broadly. And they could build legitimacy through-- sometimes there were government-to-government exchanges of people, students studying - say, African students studying in China or in India - and really starting to build that social connection there.

And firms could increase bargaining power through a number of ways too, through not just kind of individual firm-- kind of two-firm partnerships for example, but multi-firm coalitions that spanned sectors and allowed firms to go in at large scale and large scope to really make their presence valuable to the location with the understanding that, if there was interference in terms of requests for bribery and things like that, then that host country would lose investment from that country going forward, for example.

These firms could also increase their bargaining power by really communicating with their home country government and making sure that, really, even the largest firm has less leverage than their government to really have direct communications with the host country government kind of to place some carrots on sticks to make sure that those requests for bribes were minimized and to provide support to the host country for figuring how to manage issues relating to corruption, for example.

In sum, our paper fills an important gap in the corruption literature by increasing our understanding of the options and strategies that firms have at their disposal when they invest in countries where corruption is a greater problem. And one of the interesting things that we found is that, as noted, a number of these developing-country firms tended to be a little bit more innovative and creative in terms of how they interacted with their host country. They didn't take it as this exogenous set of attributes that they had to adapt to. They felt that, endogenously, through their own actions, they could make changes to the host country environment and reduce these pressures for corruption, for example.

But at the same time, we found that developed-country firms weren't sitting on the sidelines either. So, especially towards the end of our data collection, we found that firms from the US, from Europe, from Canada, from Japan, and South Korea, were beginning to adopt a number of the tactics that were within this engagement approach to managing corruption. So this really points to the fact that this is a really fluid dynamic issue, how to manage corruption.

The increase of multinationals from developing countries, such as China and India, has really changed the playing field. And it's an exciting opportunity both for researchers and for practitioners, to see what new insights can be gained from looking at these firms and seeing how firms manage corruption and also how countries can use multinationals and foreign investment to help fight corruption as well.

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