Forced to play by the house rules

E uropean countries are slipping down the charts in terms of competing for international contracts, particularly in the emerging markets. In fact, and particularly since the 2008 financial crisis, many emerging markets now have the upper hand in terms of purchasing and exporting power.

It is not that Europe doesn’t produce good inventors or manufacturers, but that companies based here are losing out on vital export sales and coming up against countries where the rules of engagement are quite different.

The reason for the lag in some cases is that governments have kept out of trade negotiations while ministers from other nations (particularly China) have taken a direct part, reaching government-to-government agreements and backing valuable contra-deals and joint ventures.

Moreover, Western companies on the whole do not offer bribes and inducements. Practices that used to fall under the euphemism ‘useful expenditures’ are now illegal.

Some companies that have rigidly adhered to these rules have missed out on valuable contract renewals and add-ons. But at the same time, there are some countries in the emerging world that flaunt their indiscretions.

A perfect example of this is China and its rail manufacturing. When the Japanese and European companies that pioneered high-speed rail agreed to build trains in China, they thought they would gain access to a booming new market that would be worth billions of dollars. They also thought they would be involved in the creation of the most ambitious rapid rail system in the world.

They did not realise that they would be competing with Chinese organisations that would adapt the original technology and claim it as their own, making millions in the process.

The Chinese administration has effectively usurped international intellectual property rules and is making a killing out of doing so. It is gloating to the world about inventing the very systems with which it was provided, while the chiefs of some of the overseas companies involved in providing that initial technology and design are left to lick their wounds.

Kawasaki of Japan was just one of the many international companies whose designs, innovations and know-how have been cloned. As one Kawasaki executive said in November: “Claiming most of the recently developed bullet trains as China’s own may be good for national pride, but it’s nothing but deceitful propaganda. How are you supposed to fight rivals when they have your technology and their cost base is so much lower?”

As emerging markets develop, they are increasingly favouring domestic suppliers, meaning they are able to demand even more from companies who want to do business with them, and in the process they gain access to even more advanced technologies. Yet companies, in the search for new and more lucrative markets, continue to queue up to offer their technology, which can be copied and turned around to the world market again.

These are serious risks to international business. And they pose a difficult question: is it time that Western companies stopped playing the good guy?

The answer is no. But the playing field has to be levelled. This will not happen until the EU, the Russian Federation and Asia Pacific agree to a set of rules and legislation.

Organisations need to become more aggressive in their attitude to doing business overseas, but they must also acknowledge that certain sectors are rife with corruption and do their homework first before tendering. Effective due diligence must be applied.

In my experience, the industries that demand caution include pharmaceuticals, communications, defence, nuclear, oil and energy, while in geographical terms the corruption hot spots are the Russian Federation, Asia Pacific, India, China, Latin America and the Middle East. SR

Stuart Poole-Robb has served in the Royal Air Force as well as the British secret service. He founded Merchant International Group in 1985 and is now chief executive of KCS Group Europe