European companies do not necessarily have to fall into the role of victim!
In the last few weeks there has been some bad news in the business news about corruption scandals in India and the arbitrariness of Indian (tax) authorities (e.g here). Just this week, November 18.11.2018th, XNUMX, a report on this appeared in the Handelsblatt with the title “Medium-sized company M+W is sinking into the Indian corruption swamp”: “The M+W Group built factories in India for twelve years. Now a corruption scandal is forcing the medium-sized company to withdraw from the market.” Among other things, there are reports about dark machinations of the local management, accompanied by underpaid social security contributions, back taxes in the double-digit million range and investigations by the authorities.
Is the M+W India case symptomatic?
It's no secret that "non-compliance" and Corruption is not an unknown phenomenon in India.
The internals of the M+W India case described are of course unknown to us as outsiders. That's why we don't want to judge it. At this point - completely detached from the specific case - we would simply like to point out that an Indian adventure does not necessarily have to end as described in the Handelsblatt article. You can have India and compliance under control if you take care of it! As a medium-sized company, you don't have to sink into the Indian corruption swamp and waste millions.
Business risks: Compliance is of the utmost urgency
From our point of view, most problems arise either during the founding due to a sloppy strategic and contractual setup of the Indian company, such as blind trust in a person who “knows his way around India so well” and is therefore the managing director of the joint Venture partner or director or similar in the company (keyword: “Super Indian”). Or there is a lack of transparency in the day-to-day operations of Indian society – see here.
A lack of care - even meticulousness - in planning and a lack of laissez-faire controlling can, in the worst case, lead to the consequences of a criminal conspiracy described in the Handelsblatt.
Non-compliance with compliance requirements has often been tolerated by the authorities in India in recent decades, was common and was part of normal business practice for many Indian managing directors. Even criminal activity was rarely discovered. But what was common practice 10 years ago has now changed significantly: thanks to digitalization and professionalization, Indian authorities have become more efficient and consistent in pursuing relevant violations and uncovering illegal business practices! However, some Indian managers still haven't noticed this, so the relevant legal requirements in everyday business are still often ignored or "safe special routes" are cleverly taken. (please refer Article here)
Active management, regular controlling and revisions
Reports like those in the Handelsblatt cause a lot of uncertainty among many medium-sized companies. Since its publication, several companies and customers have contacted us with questions “Can this happen to us too?, “Did we do everything right?” or “Do we have to react?”.
Our answer to this: With careful planning of the Indian business, regular controlling and audit measures, the risk can be reduced to a minimum.
Unfortunately, we too often see negligence and a lack of focus in monitoring regulatory requirements in India. Manage your Indian society proactively and protect yourself accordingly everywhere. Do not try to be smarter or more creative than the Indian authorities or naively follow yourSuper Indian" to trust. Compliance is a matter for the boss and should not be entrusted solely to local management. Appropriate control and audit measures are mandatory. Then you can easily go back to the usual martyr stories à la “Clean Germans become victims of corrupt India” without.
Our free checklist WB Quick Business Self-Test helps you identify acute and latent risks at an early stage. In addition, within the framework internal process audits Transparency in India can be significantly increased.
The invulnerability of your organization in India is always our most important concern. We are radical and force our customers to devote themselves to the topic without compromise. What often annoys them during planning often turns out to be a waterproof reinsurance package years later.
