CORRUPTION IN ASIA AND EFFECTS ON THIRD WORLD COUNTRY 1

Corruption in Asia and Effects on Third World Country

Samira Lanka Withanage

Woodbury University

MG 560: Ethical Leadership, 3 Units. Spring 2011

Dr. Joan Marques

January 22, 2011

 CORRUPTION IN ASIA AND EFFECTS ON THIRD WORLD COUNTRY 2

Abstract

This paper will argue the factors that plague businesses in Asia which is known as 'Corruption'.

As will be analyzed from a environmental , societal and ethnicity factor. The analysis is a

framework for providing the reader a understanding how theses aspects will effect with the basic

characteristics of business in form of case study and local environments and what it has to offer

and what it would need to improve on.

 CORRUPTION IN ASIA AND EFFECTS ON THIRD WORLD COUNTRY 3

Introduction

Global fears regarding corruption, defined as an activity that misuses public power for

private benefits, is greater than before. This increase in corruption has been detrimental in the

growth of many nations, as this paper will mainly focus on Asian third world countries and

utilitarianism being the core of corruption . The following will analytically reconsider the

relationship between corruption and growth of developing countries that have descended further

into lesser standards of living for its people (Yadong, 2002), how bribery and unethical practices

is shown to be an obstruction to growth in general, a conclusion that is in line with the proposed

writing. Using information gathered cross-national in Asia where corruption is at a maximum

(e.g. Myanmar) and minimum (e.g. Singapore).

Contrary to the principle of a certain amount of corruption is required for business

continued existence and development in Asia, this paper will argue that a utilitarianism approach

is a developmental danger and a hindrance to growth opportunities in developing countries

(Yadong, 2002). As this will be done by comparing ethnicity of each of the countries, mixes of

ethnicities and differences in homogeneous and heterogeneous countries(Hwang, 2011), which

will provide distinct insight into what influences does corruption have on organization and its

functions .

As for a legal aspect, there has been great reason for implementation of corporate

governance in Asia while it received considerable support from the economic turbulence of 1998

and 2009. Improved governance was a stipulation of International Monetary Fund and World

Bank economic support for developing countries, there are doubts about implementation and
 CORRUPTION IN ASIA AND EFFECTS ON THIRD WORLD COUNTRY 4

enforcement. Whereas this paper will discuss the obstacles, third world countries face attempting

to implement a fair system of governance (Plender, 2000).

Other forms of corruption originating from foreign nations and multinational

organizations and their influences will be examined on a microscopic level to understand this we

analyzes the connection between government corruption and the changes in the venture of

foreign partners in international joint ventures.(Meschi, 2009).

Review of Literature

Research by Yadong (2002) supports analyses the aspects of Asian business practices and

its effects. Many outdated literatures such of (Brass, Butterfield and Skaggs, 1998) and (Husted,

1994) has compared corruption to a means of "organizational behavior seeking social network

advantages" or " transaction cost reductions". Many other studies in which business ethics had

been reviewed as corporate responsibility, leadership, culture, moral sentiments, and social

attitude. But as with time theses minor views are irrelevant in which Yadong, (2002) explains

that problems derived from corruption is vast and effects all societies rich and poor. That can be

lead back to several aspects, especially nontransparent governmental behavior and verdicts, weak

counter-corruption establishments, intertwined gift-giving traditions and bribery, unclear

business-government relationships, delicate networking practice, shortage of independent and

well functioned market mechanisms and institutions, poor quality of public service, and tough

links between administrators and family businesses. All these reasons can be linked back to

studies of corruption in this paper.

Factual analysis of the corruption perception index and consumer product index will be

presented further more in Yadong, (2002) findings expand into the paper in which 19 of the top
 CORRUPTION IN ASIA AND EFFECTS ON THIRD WORLD COUNTRY 5

exporting countries will be analyzed to unbiased relationship between corruption(corruption

perception index) and the economical improvement(CPI) of a country can be clearly identified.

Research by Hwang, 2011 uses a complex empirical approach to understand whether, the

characteristics of cultural and societal groups has any impact on the level of corruption in these

nations. As Hwang " reexamines the relationship between corruption and growth after dividing

the data into two subsamples based on the Index of Ethnic Fractionalization".

A regression analysis is conducted with CPI's of 73 countries against their Index of

Ethnic Fractionalization and gross domestic profit. This analysis will entail , solidify Yadong,

2002 conclusions and give an additional deeper view of the relationship between corruption and

greater /lesser diverse groups of people.

(Wu, 2009)Determines theories and hypotheses of why most Asian companies resort to

bribery , the most used form of corruption. Among them are that smaller business are more

probable to pay bribe than large business, business with superior development rate are more

likely to pay bribes, Family-run business will be more probable to give bribes than business

under other variety of governance structure , business with poor bookkeeping traditions are more

probable to be occupied in bribery actions than firms with good bookkeeping traditions ,the more

competitive the business market environment, the less probable the business will pay bribes

,business are more probable to pay bribes if the legal system is corrupted ,business will be more

probable to pay bribe if they distinguish the rules on licensing is difficult ,business will be more

probable to pay bribe if they distinguish the understanding of laws of regulations are not clear

,business are more probable to pay bribe in an setting where the excellence of government

services is low and business are more probable to pay bribes if they faced with high taxes
 CORRUPTION IN ASIA AND EFFECTS ON THIRD WORLD COUNTRY 6

There is an underlying fact to most corruption in Asia, that is government and the lack of

corruption of governance is the problem as explained in (Meschi, 2009) ,(Plender, 2000) and

(Robins, 2002).

Corruption has its beginnings in the government authority. To better comprehend how

government corruption functions in developing economies, Meschi, 2009 distinguish it according

to two aspects. These two aspects are unconnected and they mirror definite types of government

corruption in developing economies.

(Meschi, 2009) The first aspect associates to how government corruption is controlled in

developing economies with well-ordered corruption, a few top officials merge and organize the

collection of bribes from business. In a monopolistic manner, the ambiguity linked with the

bribery transaction is low, and business can plausibly presume to get what they paid for.

(Meschi, 2009) The second aspect associates to how corrupt officials value government

services (for example licenses and permits) to business. This case is known as “corruption

without theft” (Robins, 2002.)

Discussion - Social Aspect

Many older researches done by (Brass, Butterfield and Skaggs, 1998) and (Husted,

1994) has evaluate corruption to a method for an organization to seek social networking

advantages. But this can type of behavior can be related into many of the Asian way of doing

business and commonly misinterpreted for corruption.

For this discussion, we use the' Chinese guanxi' which is attributed for interpersonal

connections and embedded and used in exploitation of business activities. Guanxi refers to the
 CORRUPTION IN ASIA AND EFFECTS ON THIRD WORLD COUNTRY 7

idea of creating associations in furthermore securing favoritism in individual relations. It holds

hidden shared commitments, assurance, and understanding and governs Chinese attitudes toward

long-term social and business relationships. Which sounds particularly simlar to corruption but it

is not, as there is five significant differences between guanxi and corruption opposed .

Firstly guanxi is an element of social norm in an Asian environment, opposed to

corruption which diverges from social norm. Exchanges of favors in the Asian context of

business are based implicitly, social cooperation has extensively been an significant factor of the

Asian culture. It restore balance for the lack of laws and law enforcement and make possible

social and economic interactions in people's life. Corruption, on the other hand strays from

together the normal responsibilities of a public role and the normally established social

standards. People praise expert guanxi developers, but they denounce corrupted bureaucrats.

Second Guanxi is legal, opposed to corruption can be noted as a practice that is illegal.

Guanxi and corruption can have particular widespread tactics or techniques following the

practices (example: gift-giving) but vary in essence in legal implications. As a business culture,

guanxi balances law and instruct business success. Corruption, on the other hand creates a stern

hazard of marginalization in the global marketplace. It threatens to erode already waning support

for development assistance to governments.

Guanxi does not require any lawful dangers if it be unsuccessful, where corruption is

associated to great legal danger and reservations. When a guanxi association ends, it contains

only social penalty. That is, the person who is unsuccessful to fulfill with guanxi values will lose

that specific network more so forever , and there social standing among their business

environment . With loss of older guanxi connections the business will have build connections
 CORRUPTION IN ASIA AND EFFECTS ON THIRD WORLD COUNTRY 8

from the beginning which will incorporate higher costs to build up new guanxi relations in their

environment. In comparison, a corruption constantly come across as high risk being caught for

illegal activity when incorporating corrupt activities.

Guanxi builds on a long-term orientation, whereas corruption deals with a shortterm'

transaction. Guanxi is recognized and resistant through continuous, long-term relationship and

communication. Populace in Asian cultures presume the interdependence of proceedings,

considerate of all social connections within the circumstance of a lasting balance sheet. Some

guanxi associates continue from generation to generation and on no account end. By contrast,

corruption is a one-time attempt connecting temporary profit for a particular business. It is time

and again seen as an isolated incidence highlighting immediate benefits from the trade. Although

some corruption relations can also be constant involving the same people, they typically exist in

recurring businesses where the courptions is frequent and bribery is a necessity. Due to the lack

of trust, these associations are not passable. Corruption is an hesitant game in which data is never

balanced, whole, and perfect which opposed to the guanxi way of business does not tarnish

quickly.

Guanxi develops on trust, where corruption is based on profit. Trust is an significant

constituent of a continued guanxi association and confines the probability of opportunistic

activities. Even if trustworthiness is fixed in social associations, its fundamental rule that allow

those who utilize it a sense of ethical dominance, truthfulness, and honesty, which is crucial to

guanxi preservation in the long run. By difference, a corruption association is recognized based

on profit exchange between money and power. Power without difficulty can transform to

commodity when legislative, institutional, and court systems are all corrupted. Even though the
 CORRUPTION IN ASIA AND EFFECTS ON THIRD WORLD COUNTRY 9

value of guanxi is usually decided by trust, the value of corruption is time and again decided by

power.

Discussion - Environmental Aspect

Firm size and growth rate , There are heavy reasons to believe that small organizations

might have a higher tendency to conduct themselves in a corrupt manner than large firms. First,

small firms could be comfortable targets because they lack influence to oppose greedy

bureaucrat strain for bribe payments and they do not normally draw much attention from

government corrective. Second, unlike large firms which consist of many internal processes and

procedures that weed out corruption inside of the organization, comparatively smaller

organization cannot hold internal procedures or devote time for these processes. Third, small

firms can pay a superior quantity of their revenues in bribe payments than large firms do.

Market environment, the market situation for Asian firms has altered considerably in

modern decades. Many third world countries have present market-oriented improvement to

unlock up additional division for opposition, and globalization involve opposition not only

amongst home grown firms but also with international corporation that may have superior

technology and goods. These altercation could have deep influence on firms choice to take part

in bribery and further corruption schemes. Market opposition created by dismantling state

control may reduce corruption activities by lessening firms’ incentive to bribe.

Legal environment, the legal system offers a possible security regulator for controlling

the increase of corruption practices. It oblige hazard on both areas, to corrupt bureaucrat and to

organization that pay bribes. Nevertheless, the legal mechanism itself is a part of the structure

and thus focus to the same problem. For example, in many Asian nations the legal structure is
CORRUPTION IN ASIA AND EFFECTS ON THIRD WORLD COUNTRY 10

as corrupt as additional government agencies. Firms in service within a corrupt legal

environment possibly more prone to corruption, for two reasons. Corrupt bureaucrat have less to

fear when supported by a fraudulent legal system. And organization can bribe their way out of

worry when faced by law enforcement organization, although their corrupt activities happen to

be exposed.

Regulatory environment, Guideline is an significant policy instrument that governments

can exercise to battle various market breakdown. Nevertheless, regulatory environment can

offer a abundant breeding ground for corruption in nations with frail authority, where

bureaucrat given power with regulatory duties are often given unrestricted power . Governments

not only enforce rules but also impose taxes and implement criminal laws. As they can hold out

these tasks, bureaucrat can delay and hound organizations that they do business with, and they

can force costs exclusively in a way that disturb a organizational competitive position .

Discussion - Ethnicity

The influence of corruption on development depends on economic and social

communication levels, which are limited noticeably by a country’s uniqueness such as the

homogeneity of its citizen. For this reason, the effect of corruption on growth may be due to

different diversities of people constituents the country . Studies have shown that are based on the

median of the Index of Ethnic Fractionalization which reflects the homogeneity among

constituents in a country that among.

Conclusion

Corruption is extensive in numerous Asian countries but what influences corruption has

on organization and its functions. Contrary to the principle of a certain amount of corruption is
CORRUPTION IN ASIA AND EFFECTS ON THIRD WORLD COUNTRY 11

required for business continued existence and development in Asia, This paper pointed out that

corruption is an developmental danger and a hindrance to growth opportunities in developing

countries.

While comparing ethnicity of each of the countries, mixes of ethnicities and differences in

homogeneous and heterogeneous countries(Hwang, 2011).As proven in the research presented in

this paper , corruption does not help in improvement of a nation. As there is many factors that

can influence corruption or increase it.

Reference
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