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

December 7, 2015
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?

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