Frank Brown: A plan for integrating local partners into the global supply chain

Local firms in emerging markets are often highly attractive to multinationals looking for new suppliers and partners. Those local firms, many of them mid-sized, see joining a global value chain as a key step for survival.

Often, the biggest single factor keeping the two companies apart from one another is corruption risk: the local firm’s inability to prove their capacity to limit risk along with the multinational’s aversion to taking risks by taking on a new business partner.

This simple and common scenario helped lead the Center for International Private Enterprise (CIPE), a DC-based NGO affiliated with the U.S. Chamber of the Commerce, to launch an effort in 2010 to bridge the gap between the two sides.  

While governments and international organizations set anti-corruption rules and standards, and Western law enforcement agencies aggressively pursue potential violations, many emerging-market businesses lack sufficient practical knowledge on how to comply with these global norms. Nor are firms with a worldwide footprint always in perfect form. One study that found nearly 60 percent of global companies surveyed said they never train third parties.

For indigenous companies in emerging and frontier markets, understanding how to set up internal compliance programs that mitigate the risk of corruption is a daunting challenge. The difficulty is compounded for companies that can’t afford an in-house compliance expert or the services of international consultants and law firms.

Especially in recent years, as more countries ramp up anti-corruption enforcement (sometimes with ambiguous goals, as my colleague Michelle Chen wrote about in the case of China), the sheer volume of information and pace of change can be overwhelming. One of the most recent examples of a global development in the anti-corruption compliance sphere with implications for emerging markets is the new ISO 37001 standard, which holds promise for those smaller local firms seeking a clear global standard to which they can certify.

For the CIPE staff working on the ground in seven countries since 2010 supporting local firms to put in place compliance programs, some key takeaways, examples, and best practices to strengthen these relationships, include:

• Anti-corruption compliance training programs, like that administered with CIPE support by Thailand’s Institute of Directors, can include strong collective action components that push governments to address corruption issues that impact the private sector.

• Success stories demonstrate that carrots work better than sticks with emerging market firms, for whom the promise of joining value chains is a far stronger motivator than the remote threat of an FCPA action.

• Putting together a compliance program must take into account local anti-corruption factors, especially in markets with comprehensive regulation or powerful enforcement bodies, such as Russia’s Article 13.3 or Indonesia’s KPK.

• Working with local business associations, such as the Kenya Association of Manufacturers in Nairobi, has proven essential in engaging local officials, businesses, and trainers.

As CIPE has found, good will abounds among established Western compliance practitioners when it comes to supporting emerging market businesses to put in place anti-corruption programs. That generosity of experience and resources is grounded, no doubt, in the notion that ethical practices are key to global supply chains functioning and flourishing.

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Frank Brown is the Value Chain/Anti-Corruption Program Team Leader at CIPE. He previously worked as a journalist in Eurasia and the U.S.