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SHANGHAI, April 3, 2013 /PRNewswire/ -- Corruption/fraud continues to be ranked amongst the top five most serious business challenges for American companies operating in China, according to the "China Business Report 2012-2013" jointly released by Control Risks, a global business risk consultancy, and the American Chamber of Commerce in Shanghai (AmCham Shanghai). The annual report polled 420 American companies in China, of which 83 per cent have been operating in China for more than five years and 57 per cent for more than a decade.
Sixty-nine per cent of respondents indicated that corruption and fraud are a hindrance to their business, an increase of 8 per cent from last year. An overwhelming majority of companies (90 per cent) cited that the issue of corruption and fraud has either remain unchanged or has worsened, up from 84 per cent a year ago. The most common types of corruption reported were sales kickbacks to customers (58 per cent), followed by employee fraud (50 per cent) and government tenders (34 per cent).
Of all industries, the healthcare sector was most seriously hindered by corruption and fraud (38 per cent), followed by the retail sector (27 per cent) and the consumer goods sector (22 per cent). Both the healthcare and consumer goods sectors saw significant worsening in corruption and fraud, with 23 per cent from both sectors reporting deterioration over last year, the worst across various industries.
"There is still a long way to go for China to combat corruption and fraud," said Kent Kedl, Managing Director of Greater China and North Asia for Control Risks. "The Chinese leadership has vowed to crack down on corruption, which is a good thing, but this will take time. There is also the perception by some in the foreign business community who feel that key regulatory and policy issues favour local companies over the foreign ones. So the new Chinese leadership has their work cut out for them."
As Foreign Corrupt Practices Act (FCPA) enforcement actions continue to gain momentum against violations in China, this year's survey shows that more companies are placing greater emphasis in complying with international laws, such as the FCPA and the UK Bribery Act, and benchmarking their practices against these standards. In contrast to the strong emphasis placed on the adherence of local laws in last year's survey, this year's findings reveal that businesses are giving greater attention to the compliance of international laws (37 per cent) and internal codes of conduct (31 per cent).
Adds Mr. Kedl: "The FCPA and the UK Bribery Act have forced companies to review and adjust their anti-corruption policies and practices in order to stay out of legal trouble. Foreign businesses have to focus on compliance with international laws with greater urgency to avoid financial and reputational losses as a result of increased prosecutions."
Labour-related issues remain a key concern for businesses, with 92 per cent of respondents citing rising costs, 89 per cent citing human resource constraints, and 42 per cent citing labour unrest as key challenges to their business. Respondents have attributed the increase in labour costs as the biggest contributor to rising costs (89 per cent), and the majority felt that this issue will get worse (60 per cent). Although finding and retaining talent to fill managerial, executive and skilled professional positions remain difficult in China, companies are also faced with increased pressure to manage wages, restructuring and layoffs more delicately to avoid labour unrest, which can severely disrupt their operations and lead to loss of assets.
Mr. Kedl concludes: "As the Chinese economy enters the 'new normal' where double-digit growth rates fade into the past and wage levels continue to climb and surpass those in the neighbouring developing countries, labour risks must be carefully assessed in the management's decision-making process, especially in cases of restructuring and layoffs. There is no excuse for foreign companies to trivialise the potential impact of labour unrest, both within and outside their compounds."
About the 2012-2013 China Business Report
The 2012-2013 China Business Report highlights the results of the AmCham Shanghai's China Business Climate Survey, a comprehensive survey of U.S. companies with operations in China. First launched in 1999, this year's report tracks responses on a wide range of topics including top line business performance, growth expectations, top challenges and trends to watch in 2013. The 2012 survey was conducted online in November and December of 2012. A record 420 member companies participated in the anonymous survey, yielding a response rate of 25%. Control Risks is proud to be the supporting partner with AmCham Shanghai on the 2012-2013 China Business Report.
To obtain a copy of the Report, please visit www.amcham-shanghai.org.
About Control Risks
Control Risks is an independent, global risk consultancy specialising in political, integrity and security risk. We help our clients understand and manage the risks of operating in complex or hostile environments. With our unique combination of services, wide geographical reach and the trust our clients place in us, 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 Director, Asia Pacific
Control Risks
Tel: +65 6227 2038 / +65 9108 3620
Email: selina.lim@controlrisks.com
Elvis Chiu
Marketing Executive
Control Risks
Tel: +65 6227 2038 / +65 9116 2032
Email: elvis.chiu@controlrisks.com
