Corruption and SMEs: Exploring the business case for western SMEs to counter involvement in administrative corruption in developing countries

Anders Rune

Student thesis: Master thesis

Abstract

Despite the fact that many developing countries offer highly attractive markets to foreign investors, the business environments in such countries are often characterised by systemic levels of administrative corruption - a situation where bribery and facilitation payments are used to resolve bureaucratic and administrative processes between companies and state agents. According to research, this type of corruption constitutes one of the most important investment barriers for foreign companies investing in developing countries as it raises the cost of doing business and thereby limits the prospects for business growth and development. The companies that suffer mostly from corruption are small and medium sized enterprises (SMEs) due to the liability of size and thus limited resources and capabilities to avoid it. As a result, many SMEs simply accept corruption as a normal element of doing business and use it as a mean to ‘get things done’, despite knowing that it is both illegal and that it raises the cost of doing business. However, corruption and bribery in such markets may also open doors to ‘easier’ and preferential investment conditions, which ultimately represents a dilemma for SMEs when weighing the advantages and disadvantages of engaging in corrupt behaviour. By exploring the interaction between western SMEs and public officials in selected developing markets, this thesis intend to contribute to the understanding of the causes of administrative corruption in different institutional settings and to assess the potential role of both SMEs and governments in fighting it. By analysing the risks, costs and potential benefits of administrative corruption, it particularly seeks to assess whether a ‘SME business case’ to avoid involvement in corruption exists for western SMEs and how an anti-corruption strategy for SMEs may look like.

EducationsMSc in Business, Language and Culture, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2011
Number of pages90