Frontier Markets Require a Long-Term Investment in Compliance & Success

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The rewards from investing in so-called “frontier markets” are enticing: rapid growth with unexploited niches, often marked by youthful consumers excited with their new found discretionary cash. These are the regions that offer higher profit margins and growth trajectories than ultracompetitive developed economies.

But with reward comes risk, as frontier markets are often where lucrative business opportunities and corruption risk collide.  

And while many multinationals have home offices in what we might consider the Transparency International Corruption Perception Index “very clean” zone, lax compliance in frontier markets, or “highly corrupt” zones, can quickly produce a quagmire of government and internal investigations, shrinking profits, ballooning legal costs, and consequential reputation damage.  

For example, in Brazil, according to U.S. prosecutors, engineering and construction giant Odebrecht (and its co-conspirators), paid $788 million in bribes to facilitate more than 100 projects in 13 countries that earned the ring more than $3 billion in profits. As details of front companies and secret bank accounts continue to unfold, the FCPA Blog recently reported that three U.S. fund managers have notified the SEC of potential losses on investments with exposure to Odebrecht’s collapsing business. The stream of coverage on Unaoil, which has already resulted in one enforcement action, but which continues to evolve, also demonstrates frontier market risk, where intermediaries, which are often the gatekeepers to these markets, can expose people and organizations to tremendous ethical and regulatory peril.


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But the lessons of Unaoil and Odebrecht, among others, aren’t to avoid frontier markets; rather, it’s to approach them with a clear-eyed view of risk 

But the lessons of Unaoil and Odebrecht, among others, aren’t to avoid frontier markets; rather, it’s to approach them with a clear-eyed view of risk before committing resources, and to understand how much it will cost, on the front-end, to mitigate and address what might be inevitable corruption risk. And those costs can be high, including extensive due diligence on a mix third parties, suppliers, and government officials, with whom you might interact. But if you are looking at potential long-term market growth, with an ethical and sustainable business model, such costs can be reasonable, whereas a quick “in and out” perspective will probably not support such a cash-heavy investment.

Thus, when looking at frontier markets, an integrated approach to the business, which matches ethics and compliance resources, to commercial considerations and strategies, is essential to success. In other words, it’s a P&L within itself, but one where compliance expenditures and investments are factored into the equation. It can start with executives asking, “What do we need to find out about this specific market before we make a decision to invest?” Then, once business leaders can compare the size of the market opportunity to the level of due diligence and compliance resources that are needed to succeed, can they ponder, “does this make good business sense?” It might not always mean “yes.”

No “Bad” Countries

be cautious when branding countries, regions, or even continents, as having a bad corruption “brand,” when risk varies according to industries, markets, and sometimes even within a country.

It’s a natural reaction to brand entire countries as good or bad based on their perceived levels of corruption; after all, frontier markets, as a group, are usually characterized by high risk and low integrity, along with weak institutions of state. But a deeper dive also might unearth opportunity, even within these high corruption risk regions, where there are often sectors and ministries that have broken through the “bad brand,” by conducting themselves with transparency, integrity, and clean commerce. So be cautious when branding countries, regions, or even continents, as having a bad corruption “brand,” when risk varies according to industries, markets, and sometimes even within a country.

 “Due Diligence Lite” Won’t Cut It

For companies entering an entirely new frontier market, a low level of due diligence – we’ll call it “due diligence lite” – isn’t sufficient. A deeper dive is usually required, possibly with the help of external providers with experience in that market. Some factors to include in those initial decisions might include:

  • Intermediaries: Many countries virtually require some relationship with local intermediaries. To find the right intermediary who’s not going to get your company in trouble might require the services of a due diligence provider to perform a local investigation, and that information needs to be matched to other data, including publically sourced material, self-assessments, trade references, and questionnaires. In many countries, national registries are not reliable, so getting information that’s dependable for making investment and commercial decisions is going to be difficult, at best.
  • Vendors: Plan on spending more on due diligence for riskier vendors, and think about social responsibility, including the vendor’s reputation for fair wages, a safe working environment, and their overall standing and relationship with other stakeholders.  While the local provider of office supplies or cleaning services might present relatively little risk compared with your freight forwarder, who might be bribing customs officials, an office cleaning service that abuses its workforce can be equally harmful to the reputation of its customers.
  • Relatives: Hiring the relatives of public officials or clients can be risky business. People can be very creative, especially in frontier markets, in devising ways influence the decisions of public officials. You need to have a careful vetting process whenever a potential client asks you to consider hiring somebody who could be a relative. It might be ok, but without proper controls, it might also be illegal, and distort sound commercial decisions.

Read More: 3 Top Anti-Corruption Best Practices Businesses Should Adopt


The Investigators Are Watching

The teeth of international law enforcement cooperation are very real and sophisticated.

Decades ago, frontier markets were relatively safe zones for bribery and other corrupt practices. No longer. International investigators are getting increasingly sophisticated and share information among themselves through conventions like the Mutual Legal Assistance Treaty, where U.S. prosecutors can obtain evidence from foreign countries that is admissible in U.S. courts.  There are other formal and informal mechanisms, including the OECD’s working group meetings, and the International Foreign Bribery Taskforce. I speak from experience on the power of these multinational investigations: I served as an undercover cooperator with the City of London police, and the FBI, in an investigation that also involved working undercover in the United Arab Emirates. The teeth of international law enforcement cooperation are very real and sophisticated.

Prepare for the Long-Haul

Despite the risks, frontier markets present huge opportunities. Where companies often get it wrong is when they identify a market and dive in before performing all the necessary ‘pre-work’ to determine if it’s a good idea. Jonathan Berman’s book “Success in Africa” is a good guide on how to build a lasting franchise in challenging frontier markets. It’s an inspiring work.

In sum, frontier markets aren’t for the undercapitalized or the impatient. Companies with thin financial resources, that might be prone to making snap decisions when entering a new market, without performing front-end due diligence, can get into trouble quickly. Only by adopting a long-term perspective, and building an organization that intertwines robust commercial objectives with compliance practices and resources, can you realize great opportunity and growth. Yes, even in regions where local practices might appear to conflict with the rules, opportunities abound, where all stakeholders can benefit in the process. 


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Policies and procedures create the framework of an effective ethics and compliance program. However, this framework only resonates through an organization when paired with training. Policies and training together is what ensures that the concepts within our documents are absorbed and adopted. It’s what drives true behavior change and increases the ROI of culture.

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