Healthcare, energy sectors most vulnerable to corruption and
fraud
Intellectual property infringement and labour disputes identified
as serious hindrances
SHANGHAI, Feb. 27, 2012 /PRNewswire-Asia/ -- Corruption/fraud is
ranked amongst the top five most serious business challenges for
American companies operating in China, according to the "China
Business Report 2011-2012" jointly released this month by Control
Risks, a global business risk consultancy, and the American Chamber
of Commerce in Shanghai (AmCham Shanghai). This year's report
polled 315 American companies, of which 80 per cent have been
operating in China for more than five years and 50 per cent for
more than a decade.
Sixty-one per cent of respondents cited corruption and fraud to be
a hindrance to their business operations, with 13 per cent saying
that these are serious obstacles to their operations and
profitability. The most common types of corruption reported were
kickbacks to customers (38 per cent), followed by employee fraud
(24 per cent) and government tenders (21 per cent). Moreover, 12
per cent of companies indicated that corruption and fraud had
worsened in 2011 as compared to 2010. Corruption was seen as most
serious in the central region and deteriorating in the
North-eastern part of China.
Across the industries, the healthcare and energy sectors reported
the highest incidence of corruption and fraud, with healthcare
showing marked worsening in corruption and fraud (29% reporting
deterioration, by far the worst of any industry). By contrast, the
auto and consumer good sectors view corruption to be less of an
issue. Respondents said that the increased prevalence of corruption
and fraud in the healthcare and energy sectors was due to the rapid
growth of the industries, outstripping the authorities' ability to
regulate them effectively.
"This year's findings provide a reason for both optimism and
concern," said Kent Kedl, Managing Director of China and North Asia
for Control Risks. "While many firms continue to place strategic
importance to their China operations, the overall incidence of
corruption and fraud has risen and these pose significant financial
and reputational risks to organisations who are seeking greater
exposure in what is increasingly viewed as a mature market rather
than an emerging economy."
Developing the necessary culture and controls to curtail fraud and
corruption will be one of the key challenges going forward for
businesses. According to the survey, only 30 per cent of the
companies said that it is more important to comply with
international regulations, such as the Foreign Corrupt Practices
Act and UK Bribery Act, as well as benchmark their practices
against these standards, in comparison to compliance with local
laws or a company's code of conduct.
Adds Mr. Kedl, "If you look at the preponderance of incidences in
the last year, companies seem unprepared to deal effectively with
fraud and corruption even though they have prioritised compliance
on their business agenda. There is a clear need to train senior
management, agents, vendors and foreign employees to be compliant
with international laws and at the same time, undertake rigorous
due diligence before hiring these parties to avoid reputational and
financial damage."
Notwithstanding heightened efforts by the Chinese authorities to
curb intellectual property rights (IPR) violations, companies saw
little improvement in IPR protection in 2011. More than half of the
respondents (54 per cent) consider IPR infringement to be a
hindrance to their business, ranking sixth amongst their top
business challenges, and 10 per cent said that infringements have
worsened as compared to the previous year. Of concern to companies
are the uneven application and enforcement of IPR regulations
across Chinese cities and this appears to have stalled progress in
IPR protection in the last year.
The survey also identified labour and business disputes as a source
of concern, with 10 per cent of companies indicating that these
disputes pose serious hindrances to the growth of their business.
Business disputes were somewhat more likely to have worsened in
less developed inland areas of China, but they were of greater
concern to larger operations on the East coast. Particularly when
the legal and regulatory framework in China has not matured in
tandem with the growth of the market, companies looking to minimise
the occurrence of business disputes must perform thorough
background checks of individuals or companies prior to any
investment.
Labour disputes, on the other hand, were of greatest concern in the
Yangtze River Delta and the Pearl River Delta. Although of lesser
concern to other areas, labour disputes in Central, Northeast, and
Northwest China were reported to have worsened at similar rates.
Comparing labour unrest across different industries, it appears
that the consumer goods, automobile and electronic sectors were
most affected. This was caused by a number of factors such as
restructuring and layoffs from slowing export growth, the
appreciation of the yuan and accompanying squeeze on margins, and
greater awareness of employee rights.
Mr Kedl concludes: "The foremost priority for foreign companies
looking to use China as their key export base is to get their
labour issues right. Factoring in labour risks during the
stakeholder risk assessment process and planning contingencies
around protests and other disputes would ensure minimal disruptions
to their businesses. The ones who get these issues right are those
that will reap the greatest rewards out of this market."
The AmCham Shanghai China Business Report 2011-2012 includes a
detailed analysis of the key business challenges facing American
organisations in China. To obtain a copy please visit
www.amcham-shanghai.org
About the 2011-2012 China Business Report
The 2011-2012 China Business Report highlights the results of the
business climate in China, asking companies to answer topics
ranging from corporate structure to company performance and plans
for future investment. It also covers business challenges that
companies face as the market matures, prices rise and competition
increases. The survey was conducted online from mid-November
through mid- December 2011 by AmCham Shanghai and Control Risks. A
total of 315 companies participated in the anonymous survey,
yielding a response rate of 20%.
About Control Risks
Control Risks is a global risk consultancy specialising in
political, security and integrity risk. The company enables its
clients to understand and manage the risks of operating in complex
or hostile environments. Through a unique combination of services,
wide geographical reach and by adopting a close partnership
approach with clients, Control Risks helps organisations
effectively solve their problems and realise new opportunities
across the world. www.controlrisks.com
For more information please contact:
Selina Lim
Regional Marketing Manager, Asia Pacific, Control Risks
Tel: +65-6227-2038 / +65-9108-3620
Email: [email protected]
SOURCEï¹›Control Risks