Corruption Issues Lead Companies to Abandon Expansion Initiatives

Dow Jones released an intriguing survey yesterday based on responses from more than 180 companies that operate or have considered investing in emerging markets. The findings validate much of what Foglamp is designed to do: help investors and managers assess opportunity- and deal-specific corruption and regulatory challenges in emerging and frontier markets. As Dow Jones writes:

51% of respondents delayed business plans & 14% abandoned them completely because of legal questions arising from unclear anti-corruption regulations

59% of respondents delayed and 11% abandoned key initiatives because they could not get the information they needed to adequately assess the corruption risk

Fearing noncompliance, 40% of companies avoid emerging markets

One-third of companies have lost business to unethical competitors

Also intriguing to us is this tidbit that Dow Jones highlights in its findings:

Fear of breaking anti-corruption regulations plays a key role in company executives’ decision to enter or expand in emerging markets – or not. Forty percent of respondents interested in entering emerging markets cite fear of running afoul of anti-corruption regulations as a significant influencer in their decision not to enter an emerging market while 32% said it had played a minor role. Of those companies looking to expand their existing presence in emerging markets, 35% cite fear of breaking anti-corruption regulations as a significant factor in their decision not to expand and 37% said it had a minor role in their decision.

These data validate much of what Foglamp has seen over the years: despite the high upside, a fear of entering the more exotic emerging and frontier markets because of corruption and transparency challenges.

Kudos to Dow Jones for the survey.