Tag: corruption

OM in the News: Corruption and Global Operations Management

In Chapter 8 (Location Strategies), we write: “One of the greatest challenges in a global operations decision is dealing with another country’s culture. Bribery and corruption create substantial economic inefficiency.” Table 8.2 (page 339) ranks corruption based on Transparency International’s annual survey, which has just been updated for 2022. The news is not encouraging.

The 2022 Corruption Perceptions Index (CPI)  shows that most of the world continues to fail to fight corruption: 95% of countries have made little to no progress since 2017. According to the Global Peace Index, the world continues to become a less peaceful place. There is a clear connection between this violence and corruption, with countries that score lowest in this index also scoring very low on the CPI. Governments hampered by corruption lack the capacity to protect the people, while public discontent is more likely to turn into violence. This vicious cycle is impacting countries everywhere from South Sudan (with a score of 13 (on a 0-100 scale, with 0 being highly corrupt and 100 being very clean) to Brazil (score of 38).

The head of Transparency International adds: “Corruption has made our world a more dangerous place. As governments have collectively failed to make progress against it, they fuel the current rise in violence and conflict – and endanger people everywhere. The only way out is for states to do the hard work, rooting out corruption at all levels to ensure governments work for all people.”

The CPI ranks 180 countries and territories by their perceived levels of public corruption. The CPI global average remains unchanged at 43 for the eleventh year in a row, and more than 2/3 of countries have a serious problem with corruption, scoring below 50.

  • Denmark (90) tops the index this year, with Finland and New Zealand following closely, both at 87. Strong democratic institutions and regard for human rights also make these countries some of the most peaceful in the world.
  • South Sudan (13), Syria (13) and Somalia (12), all of which are embroiled in protracted conflict, remain at the bottom of the CPI.
  • 26 countries – among them the United Kingdom (73), Qatar (58) and Guatemala (24) – are all at historic lows this year.

Corruption, conflict and security are profoundly intertwined. The misuse, embezzlement or theft of public funds can deprive the very institutions in charge of protecting citizens, enforcing the law, and guarding the peace of the resources they need.

Classroom discussion questions:

  1. Why is this a Chapter 8 topic?
  2. What world events have impacted corruption levels this past year?

OM in the News: Corruption’s Impact on Operations Decisions

Protesters in Nigeria
Protesters in Nigeria

Operations managers face significant challenges when building effective supply chains across cultures. In our chapter on Location Strategies (Ch. 8), we provide an excerpt from Transparency International’s ranking of corruption in countries across the globe.

“Corruption afflicts every corner of the world,” writes The Wall Street Journal (Dec. 3, 2015). The World Bank states that 70% of Brazil’s companies identified graft as a major problem. In China, corruption has greased the wheels of the country’s long construction boom and turned hundreds of Communist Party leaders into multimillionaires. Just this week, $2 billion meant for Nigeria to buy aircraft and ammunition to fight Boko Haram vanished. The scale of corruption is equally mind-boggling in Argentina, India, Pakistan, Russia and Turkey. The World Bank says that more than $1 trillion of bribes are paid world-wide each year. The World Economic Forum estimates that the cost from global graft is more than 5% of world gross domestic product.

“Chinese President Xi Jinping insists that corruption must be stamped out, but does not address the underlying problem: the Communist Party’s monopoly of power, which continues to create economic imbalances, stifle opportunity and enrich party cronies,” says The Journal.

Corruption doesn’t come from nowhere. It is a result of economic and political institutions that empower elites while shutting out the rest of the country. That empowerment lets politicians, bureaucrats and soldiers grab resources and get wealthy from bribes. What allows them to get away with it is the absence of democratic accountability and effective checks and balances, like the rule of law and press freedom. Without fundamental change in these institutions, it is indeed difficult for OM executives to locate and manage global supply chains.

Classroom discussion questions:
1. Why is corruption such a major OM issue?
2. What can U.S. managers do to assure ethical supply chains?

Teaching Tip: Where Companies Locate and the Corruption Index

Today’s Wall Street Journal (Feb.10,2012) ran a very eye-catching 1/2 page ad, taken out by the Eurasian country,  Georgia.  Why would a multinational corporation locate in Georgia? “Because according to Transparency International we are one of the least corrupt countries in the world,” touts the ad.

And, indeed, as we discuss in Chapter 8, Location Strategies, corruption can create substantial economic inefficiency, as well as ethical and legal problems in the global arena. Transparency International’s annual corruption perceptions index (CPI) (www.transparency.org) is illustrated in Table 8.2 and excerpted here in today’s blog.  This is an interesting topic to share with your students, and can lead to their tracking the success of other nations on this index, as well as on others (such as the World economic forum’s annual competitive index —see Table 8.1 and www.weforum.org).

The World Bank’s VP for Europe and Central Asia writes in the Journal: “Corruption is sometimes seen as as endemic, a product of traditional local culture, and, as such, inevitable. Georgia’s experience shows that the vicious cycle can be broken.” Georgia’s zero tolerance approach toward public-sector graft since its 2003 “Rose Revolution” places the country among some of the advanced European nations on the Transparency  rankings. Georgia rose to 64th place out of 183 nations (from 68th last year) with a CPI score of 4.1. It is not quite in the league with the US, Canada, or New Zealand, but ahead of all four BRIC nations.

OM in the News: Trouble on the China Express

The title of the lead article in today’s Wall Street Journal (July 30-31, 2011) , “Trouble on the China Express“, ironically may answer the question my dinner companions had for me last night. They asked, “Do you think China has overtaken the US and moved us into the 2nd place among nations”? The Journal‘s use of the bullet train crash last week (plummeting off a viaduct after a lightning strike,  killing 40 people and injuring 190 more) is, as the paper writes, “an apt metaphor for the country’s hurtling economy over the past decade: a colossal investment project, born of the state, steeped in corruption, built for maximum velocity, and imposed paternalistically on a public”.

“Do not be desirous to have things done quickly”, said Confucius 25 centuries ago. It ” prevents their being done thoroughly”. But the Chinese leaders have hyped high-speed rail with abandon. Using imported technology, they have modified the designs and sold them as their own. A few weeks ago, the Railways Minister bragged that its technology was so superior to Japan’s that “they cannot be mentioned in the same breath”.

And it’s not just the technological glitches. The bullet train project (planned to stretch 10,000 miles at a $300 billion cost by 2020), appears to be riddled by corruption. One Chinese blogger (and there are 485 million Chinese using the Internet) wrote: “When a country is corrupt to the point that a single lightning strike can cause a train crash, the passing of a truck can collapse a bridge, and drinking a few bags of milk powder can cause kidney stones, none of us are exempted”.

The Journal concludes: The crash “has transformed a symbol of Beijing’s pride into an emblem of incompetence and imperious governance”. Does that answer my dinner companions’ question?

Discussion questions:

1. What impact can corruption have on efficient OM?

2. What are the concerns about such rapid expansion?

3. What other quality crises has China faced recently?