Businesses break the law to stay competitive

January 6, 2016 by Kevin Manne, University at Buffalo
Businesses break the law to stay competitive

Companies may strategically use corruption to gain a competitive advantage against rivals, according to a new study of formally registered Indian technology firms from the University at Buffalo School of Management.

Forthcoming in Strategic Management Journal, results of the study show that contrary to the notion that entire countries or companies may be culturally corrupt, firms pick and choose when to ignore laws and regulations and pay bribes to to compete with smaller rivals who are not formally registered.

"If the guy on the corner hasn't registered his business and doesn't pay taxes, or pays bribes to operate without hindrance, he can install your network or repair your equipment much faster and less expensively," says study co-author Rajiv Kishore, PhD, associate professor of management science and systems in the UB School of Management. "We found that the larger local firms chose to play dirty when they were competing for the same customers as the little guy."

The local companies didn't engage in corruption in all situations, however. According to the study, when the formally registered Indian companies were competing with foreign multinational corporations, they chose to train their employees instead of engaging in corruption.

"To compete with the likes of IBM or Accenture, you need employees with deep expertise," says Kishore. "By providing professional development opportunities, you increase the expertise of your workforce, improve job satisfaction and reduce employee turnover for these experts, allowing you to compete with multinational rival firms."

For U.S.-based companies entering the Indian tech marketplace, the researchers say that lower-cost, easier-to-produce products are the way to go.

"Corruption allows small Indian businesses to evade regulations, reducing time to market and production costs," says study co-author Debabrata Talukdar, professor of marketing in the UB School of Management. "By creating lower cost versions of products, American companies can compete with smaller unregistered rivals without violating the Foreign Corrupt Practices Act."

The study analyzed a World Bank survey of 360 formal Indian IT firms with information on firm age, diversification, number of employees, patenting activity, advertisement activity, public or private status, foreign ownership share, access to public infrastructure and finance, as well as senior managers' perceptions and reports of competitive threats, government policies and regulations, informal gifts or payments expected or requested by government officials, and training provided by their firms to their employees.

Explore further: Tool created to help multinational companies assess risk of bribery when doing business in foreign countries

More information: Akie Iriyama et al. Playing dirty or building capability? Corruption and HR training as competitive actions to threats from informal and foreign firm rivals, Strategic Management Journal (2015). DOI: 10.1002/smj.2447

Related Stories

Study explores why 'family' CEOs think differently

December 10, 2015

Founder-CEOs and CEOs related to the founder see the world differently than CEOs of non-family firms, and they pursue different strategies, according to new research from the Robert H. Smith School of Business at the University ...

Global corporate responsibility goes beyond banning bribes

February 5, 2014

( —Companies must see combating corruption and promoting human rights as connected and complementary moral duties in the countries where they operate, according to researchers at the University of Michigan's Ross ...

Recommended for you

Coffee-based colloids for direct solar absorption

March 22, 2019

Solar energy is one of the most promising resources to help reduce fossil fuel consumption and mitigate greenhouse gas emissions to power a sustainable future. Devices presently in use to convert solar energy into thermal ...

EPA adviser is promoting harmful ideas, scientists say

March 22, 2019

The Trump administration's reliance on industry-funded environmental specialists is again coming under fire, this time by researchers who say that Louis Anthony "Tony" Cox Jr., who leads a key Environmental Protection Agency ...


Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.