Companies cutting costs but increasing risks
November 02, 2009 | BY
clpstaff &clp articles &A new survey reveals that almost all businesses in China have recently experienced fraud
I wrote in July, there are risks in China and business needs to accept that. Of course, China is not unique in that fact, but it seems reasonable that a country which makes international headlines daily for its record-breaking economic growth and development should require particularly close examination.
If the figures in the latest survey conducted by The Economist Intelligence Unit for risk specialists Kroll are to be believed (and there's no reason why they shouldn't be) there is cause for concern. To quote from Kroll's new global fraud report: “In the latest survey, 96% of companies in Greater China said that they had experienced at least one type of fraud in the last three years.”
This is an astonishingly high figure, and one which threatens to derail so much of China's commendable progress. Looking closer, it seems that companies believe they are particularly vulnerable to vendor, supplier or procurement fraud. Added to the inherent risks of a long and opaque supply chain (see our news analysis story on page 6 for one example), it's clear that foreign companies must take great care when dealing with suppliers in China.
But, like charity, fraud often begins at home. Kroll highlights what it calls a “different set of red flags” to watch out for these days. One of these warning signs arises directly from companies' efforts to save money and ride out the present world economic storm: layoffs. When staff are coming and going, particularly when they have not chosen to do so, there will be problems.
“High staff turnover again this year was the most common factor increasing the vulnerability of companies within Greater China, cited by 41% of respondents,” the report states.
Staff, sadly, are often one of the first resources to be cut by struggling companies, or even relatively healthy companies keen to increase their efficiency. But as this survey shows, this is one cost-cutting measure that can backfire dramatically.
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