Seller beware – navigating consumer regulation in emerging markets

Navigating regulation in emerging markets can be fraught with difficulty. Recent experience has shown that the issue is not confined only to politically sensitive strategic sectors such as energy and defence. There is a growing trend of emerging market probes and fines against consumer and retail sector companies.

Chinese authorities particularly active…
Chinese authorities have been the most active, following a number of high profile corruption and public health scandals in recent years. A disproportionately high proportion of these probes have targeted multinationals – cases over the past year have included a series of household names, from Apple and Avon to GlaxoSmithKline and Nestle.

The typical probe follows a series of reports by state-run media and result in settlements designed to benefit public welfare, such as product price cuts and improved warranties.

In one of the most recent examples in January 2014, the Financial Times reported that Chinese authorities were investigating allegations that NuSkin, a direct marketer of anti-aging products and dietary supplements, was operating an illegal pyramid scheme, “brainwashing” company reps and allowing them to market products that they were not licensed to sell.

While miselling occurs in many countries, the FT report on this case warned that ‘the opacity of China’s rules and their unclear enforcement require that investors show vigilance’. The company denies the allegations but has drawn attention to these challenges in stating that it is seeking guidance from different regional authorities and rolling out a revised training programme for staff.

...but not alone
The challenge of volatile consumer regulation is not limited to China. In Turkey, for example, developments in the alcohol sector over the past few years include wide-ranging restrictions on advertising, a 30% increase in the special tax on alcohol and a Turkish competition law probe into Mey Icki, Diageo’s new acquisition, for allegedly restricting sales of competing products in stores.

Given the challenge presented by a whole range of undefined, ambiguous and overlapping regulation, not to mention the varied regional interpretations, how can businesses manage the risks? Here are some things to think about as part of your approach:

Some rules of thumb

  • Set the standard. Companies should look for ambiguous and informal official processes and seek to make up the gap. Documenting pivotal issues such as timetables and criteria for decisions will not prevent inconsistent regulatory decisions. But it can help define the problem and provide a clear starting point for legal and diplomatic negotiations.  Globally consistent standards of quality and service are another way to manage regional variations in administration.
  • Start as you mean to go on. It is important not to let rapid expansion outpace company systems for management oversight or staff training. Allowing extra time for initial start-up and market development can help mitigate the behavioural risks of local management cutting corners on standards and internal approvals, or using improper gifts and hospitality to seek accelerated licensing and permitting.
  • Encourage honest discussion of risks and challenges. Overly aggressive and unbalanced sales targets can encourage unrealistic reporting and deter staff from raising awkward truths. Treated seriously, customer feedback and wider community initiatives can also provide a useful perspective on how your market perceives the company and its local practices.

Get further detail on a similar issue in our previous blog about "Doing the right thing - Effectively managing integrity risk in frontier markets

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