By Frederic Wehrlé

Due to their low profile and size, small and medium sized enterprises (SMEs) are easy targets for lower-level government officials seeking to supplement their incomes with facilitation payments and petty corruption. As SMEs continue to face bribery solicitation and extortion in many countries of the world, the same characteristics – low profile and size – puts them in front of particular challenges when it comes to coping with bribery. Finding innovative ways for SMEs to prevent and combat corruption was one of the key issues that came to the fore at the June 2014 ICCA Collective Action conference.

There are no easy fixes. Solving the problem has generally been viewed by SMEs as the responsibility of governments, not theirs. On the other hand, SMEs have commonly been advised to deal with extortion by individually undertaking certain measures to prevent the giving of bribes, on the model developed by larger companies.

However, SMEs differ from large companies in many ways. SMEs often do not have adequate financial and human resources to develop large-scale compliance programs nor the time to keep informed of legal changes and of evolving international anti-bribery standards. When facing bribe solicitation to obtain a market, SMEs may also not have the bargaining power larger firms enjoy.

Benefits from engaging in Collective Action

Concerted efforts made by SMEs through Collective Action may provide a way to overcome these hurdles and more effectively deal with solicitation and extortion. Collective Action for SMEs serves several purposes. First it enables cooperation and the sharing of experience between like-minded SMEs who are tired to pay bribes and affords them the benefits of a group approach. Second, Collective Action makes it more likely that governments will consider their anti-corruption stand, thus it gives SMEs a greater bargaining power. Third, Collective Action creates a “level playing field” in which no business has an unfair advantage by not engaging in bribe giving. Finally, as Collective Action approaches makes it more easy to operate ethically, SMEs can further integrate global value chains: multinational which are bound to strict anti-bribery rules will rely on SMEs that demonstrate high ethical standards, which in turn will increase the concerned SMEs profits and boost their competitiveness.

Setting the groundwork

The conference helped identify the basic elements for effective Collective Action for SMEs.

First, business associations as well as multinationals have an important role in demonstrating the positive business benefits of Collective Action. Arguing for SMEs’ involvement in Collective Action through highlighting the competitive advantage SMEs may gain from implementing ethical business practices and its contribution to creating a level playing field presents strong incentives for SME participation.

Second, it is important to recognise that not all situations may call for Collective Action.

Third, there is no standard model. Collective Action must be tailored to the different categories of SMEs, for example within a certain industry or a geographical area. SMEs can band together to address a particular corruption problem, for instance in relation to a public bidding, or to pursue long-term strategies for countering corruption. Where it relates to a contract, all parties in tendering can for example decide to come together and collectively sign a declaration stating they will not engage in illicit activities. Where it comes to develop a durable strategy, collective action may take the form of a long-term agreement, aimed at promoting integrity standards in an industry, among business peers. 

Collective Actions for SMEs must be built on these three pillars:

• education of SMEs on the business case for their involvement in Collective Action;
• tailoring coalitions to industries or geographical areas;
• building alliances that share the same vision and goals and are clear on how these are to be achieved.

While the process may be lengthy and cumbersome, the benefits of Collective Actions for SMEs are potentially tremendous. In this endeavour, and in view of their resource and capacity restrictions, assistance, in the form of a business association or an independent facilitator, could help SMEs engage in Collective Action. Their supply chain partners or multinationals active in the same industry or geographical area could be good partners in this respect.