More than two thirds of business executives say emerging markets have become trickier places to do business over the past two years in terms of compliance and integrity-related risks, according to a survey by Deloitte Financial Advisory Services.
Some 70 percent of business executives of multinational companies say they are ‘extremely’ or ‘very’ concerned about compliance and integrity related risks when doing business with emerging markets outside their home countries, according to the Deloitte survey. At the same time, 71 percent of the executives say the risks have gotten worse over the past two years.
‘The benefits of expanding into emerging markets can be significant to lower costs, tap a wider pool of skilled labor, improve the ability to respond quickly to changes in demand, and gain access to new customers,’ says the report.
‘Yet, the compliance and integrity-related risks can also be significant. Before investing or engaging third parties, companies should consider implementing processes to manage risks such as corruption, money laundering, terrorist financing, connections to organized crime, criminal activity, and violations of economic and trade sanctions.’
The survey of 126 business executives in North America, Europe, Asia and Latin America finds that bribery of government officials was the greatest compliance risk when investing in emerging markets, with 40 percent of the executives citing it as their main concern. Commercial bribery, or kickbacks, is the top concern of 26 percent of the executives. Violation of economic sanctions or embargos was cited by 12 percent, coming in third place.
The executives also display a low level of confidence in the ability of their organizations to identify and mitigate compliance risks during mergers and acquisitions in an emerging market, with only 38 percent saying they are ‘very’ or ‘extremely’ confident.
The survey also indicates that due diligence is much more common when companies merge or initiate greenfield investments in emerging markets than when they engage other companies in those markets. Some 71 percent of the executives say they perform due diligence before an M&A transaction while only 43 percent do before engaging vendors.
When they do conduct risk assessments before engaging third parties in emerging markets, 72 percent of the executives surveyed say they independently consult public records, while 68 percent hire local professionals as part of their risk assessments, and 67 percent impose disclosure requirements on representatives of consultants.
