What is Killing Small Businesses around the Globe
At present, corruption is one of the greatest enemies that small businesses around the world are facing. That is because it can result in far-reaching consequences including the total closure of a business. Within a business, an individual or a clique of employees can perpetuate the vice. For many businesses, corruption involves misappropriation of funds, bribery, and misuse of office by employees. Another major thing that may cause corruption within a business is dishonesty in financial affairs. Its magnitude notwithstanding, the menace of corruption can hurt the image of the business and jeopardize its profitability. Below are some of the significant ways in which corruption affects businesses.
Financial Losses
Unfortunately, the corruption menace often results in loss of funds, mainly through graft and embezzlement. That usually causes a derailment of the implementation of business strategies. When resources that could be used to support the smooth running of the business are used unproductively, the business may lack essential inputs. Consequently, the business may experience a massive loss of customers who lose faith and start preferring rival products.
Moreover, corruption may lead the business employee to inflate prices to gain more from a sale. If competing firms can seize this opportunity to outdo the affected business, there will be a significant reduction in market share. The business can also accrue losses trying to recuperate for a ruined reputation. Wooing back customers, partners and the public back into the business may take a long time or eventually prove futile.
Leads to a shadow economy
In countries with a high record of corruption, there are high chances of getting shadow economy. Moreover, entrepreneurs tend to avoid registering their businesses to maneuver taxation. According to a recent survey, the income generated by many unregistered businesses exists outside the official economy. Therefore, a large number of businesses are not subject to state taxation and are not included in the calculation of the country’s GDP. That creates a shadow economy. Another impact of shadow businesses is that they usually pay their employees a relatively small salary than the amount directed by the government. In most instance, such businesses do not provide acceptable working conditions including significant health insurance benefits.
Restriction of Shareholders and Investors
Typically, investors can never fund a business whose reputation has been bruised by corruption. In fact, reports of corruption can cause shareholders and investors to lose trust and confidence in a business. Particularly, continued fraud increases the entrepreneurs’ risk of incurring losses through a reduction in sales and misuse of scarce resources. Corruption, either internal or external, may discourage potential innovators and entrepreneur from investing in the startups for fear of failure.
Inefficiently Allocated Resources
Ideal practices in tendering require businesses to choose supplies via a competitive process. That enables the business to conduct a selection of suppliers offering the best combination of price and quality. In turn, that ensures there is an efficient allocation of resources. In corrupted economies, businesses do not follow that ideal tendering process. They award the tender to undeserving suppliers because of unfair and illegal tendering that may even involve kickbacks. Businesses experience excessive expenditure in the execution of projects, leading to overall inefficiency in resource allocation and utilization. In many instances, public procurement is perhaps most vulnerable to corruption due to the large size of financial involvement.
Spoilt Business Image
Corruption within a business can be a major setback mainly when the image of the business is concerned. Customers will automatically lose trust in the business and its products after getting a negative picture. In many cases, that results in loss of clients and reputable business partners. When this happens, the business may not be able to get back to its initial transacting levels due to loss of clients. It takes much time for a business to rebuild its reputations and win the hearts of its initial customers afresh.
Less motivation for Technology Advancement
In countries where corruption is rampant, there is little confidence in the legal system. Corrupt people rig legal judgments. Potential innovators cannot be sure that patents will protect their invention. They fear that those who know they can get away with it by bribing the authorities may copy their ideas. Therefore, this acts as a major deterrence to innovation. Most countries usually resort to using the importers of technology. The available technology is insufficient to satisfy the need of their populace. Moreover, existing technology is not created within their societies.
Business Inefficiency
Corruption entails an improper use of the available resources. It jeopardizes the efficiency of businesses around the world. Small businesses faced by fraud employ available resources in unproductive functions. Instead, the funds would be better placed in implementing basic business operations. Inefficiency in a business can also result from employees who are demoralized mainly due to corruption in the business. Besides, corruption in the recruitment process may lead to the hiring of incompetent employees who turns out to be unproductive.
