Written by Ethisphere
This regular section of Ethisphere Magazine focuses on compliance and ethics issues in global business. Each issue spotlights a different country, and includes information around key compliance challenges companies can expect when operating in each market. Additional global compliance country reports can be accessed online at www.insights.ethisphere.com.
Peru is a country with a long and storied history – the first known inhabits within the modern borders of Peru are believed to have arrived more than 15,000 years ago. The original inhabitants are thought to have traveled from Asia via the Bering Strait (between modern day Alaska and Russia), and to have eventually migrated into South America.
The country has been influenced or lead by multiple empires, including the Inca Empire, which at the height of its power stretched from modern day Colombia down to Chile and Argentina, and later as part of the Spanish-lead territory in South America. Peru’s capital, Lima, itself has a long and storied history. Founded in 1535, the city eventually gained tremendous influence over all of Spain’s South American territory and today houses Peru’s national government. The country began its independence movement in 1811, and has since had a history of various governments ranging from military lead to democratically elected.
Peru’s modern borders place it on the west coast of South America, located entirely south of the equator, next to the Pacific Ocean. The country borders Colombia and Ecuador to the north, Brazil to the east, and Bolivia and Chile to the south. While, like most countries of its size, Peru has varied climates, the majority of the country is comprised of the Amazon rainforest.
The government of Peru is classified as a constitutional republic and is divided between an executive, judicial and legislative branch. The head of the executive branch is Peru’s President, who is elected for a five year term and is unable to seek reelection. Currently the president is Ollanta Humala who began his term in office in 2011 (Humala previously ran for president in 2006 unsuccessfully). Humala is a former Peruvian military commander who lead a small military coup attempt in 2000, and was ultimately pardoned for those actions.
Peru’s GDP is the 42nd highest in the world at U.S.$322.9 billion according to the CIA’s World Facbook. The country is ranked by the International Finance Corporation’s “Ease of Doing Business” report as number 63 in ease of starting a business, 117 in dealing with construction permits, and 105 in enforcing contracts. It’s also ranked number 83 out of 177 countries on Transparency International’s Corruption Perception Index, which is a highlight of some of the difficulties the country faces today.
CORRUPTION
As mentioned above, Peru ranks 83 out of 177 countries on Transparency International’s Corruption Perception Index, an annual ranking of countries around the world by levels of corruption. Recent news articles on corruption in Peru by major international media outlets include stories on how police will tip off suspects accused of improper behavior, and money and other expensive gifts (such as homes) being given to political figures improperly.
For example, recent news articles have raised suspicion of two former presidents who are considering running for the position again, accusing them of accepting homes in the most expensive neighborhoods within Lima improperly. There were also accusations of government officials’ family members receiving improper payments in exchange for government contract awards.
Deal with it
Corruption and anti-corruption efforts are issues that have been discussed extensively over the past several years. As is the case when doing business in any countries that have high levels of corruption, multinational companies must be diligent in properly training their work force. Particular focus must be paid on employees and agents operating in these countries that have higher risks of corruption. These companies must benchmark themselves against best practices in anti-corruption program implementation or risk significant legal and financial penalties.
CRIME AND POLITICAL INSTABILITY
While Peru has a relatively stable government, it is nevertheless part of a region that is known to have political instability. Add to the fact that the sitting president attempted a coup of his own in the not-too distant past, one must manage expectations of the government’s stability. Peru has also recently seen increased levels of crime which threaten to undermine the current government.
Deal with it
Peru is relatively safe and stable as compared to some of its neighboring countries. However, companies with operations in the region must be mindful of the risks and dangers that come with the increased levels of crime in the country. If you are doing business in Peru, you should take the same precautions that you would take when traveling to other countries in the region, such as monitoring for travel advisory warnings (the U.S. State Department currently does not have a travel advisory warning for Peru), as well as avoid areas prone to higher levels of crime.
President Humala was elected in part on a commitment to reduce crime rate across the country. The current high crime rate has had an impact on his approval ratings. Recent news articles on the country’s crime rate range in terms of violence and include such examples as a prison director being shot and killed while eating dinner, all the way to petty crime increasing against both Peru citizens and tourists alike.
SOCIAL CHALLENGES
As Peru’s economy grows, and the country opens itself to increased foreign investment, there has been greater struggle around the use and preservation of natural resources. Strikes have been planned and taken place designed to preserve indigenous homes and natural resources (such as the Amazon rainforest). These have increasingly lead to deadly conflict between protestors, authorities and companies. These conflicts have lead to concern that foreign investment may be scared away.
Similar to conflicts over natural resources such as the rainforest, Peru increasingly faces challenges of illegal gold mining.
One estimate is that nearly 20 percent of the country’s gold is produced illegally through workers who are unpaid, work under duress and are unable to leave their jobs, according to one study by Massachusetts-based Verite, a fair labor organization. These operations are reportedly under control by large criminal enterprises.
Deal with it
Proper policies and training are at the foundation of ensuring your company is prepared to respond to some of these challenges should they arise. Again, as mentioned for issues listed above, if you are doing business in Peru you should be aware of when strikes or protests are scheduled to take place and strictly avoid those areas. Foreign companies should also work to build a strong reputation by working with respected local NGOs and non-profits to help address some of these growing concerns by the Peruvian population.
COCAINE AND NARCOTICS
Peru is increasing as a hotspot for cocaine and other illegal narcotics. The most densely planted coca region in the world is located in a region of Peru known as the VRAE. Despite the government’s commitment to reducing the levels of drug traffic in the country, the issue continues to last. Some third parties accuse corruption within the countries military and government for the lack of success in fighting the drug trade within the country.
Deal with it
Companies should be aware of where the hotspots of drug and narcotics actively takes place, and actively avoid those regions when possible. Similarly for individuals located or doing business in Peru, one must strictly avoid these dangerous, high crime rate areas of the country. Companies must also have global plans designed to address doing business in violent or high crime areas.
SIX ETIQUETTE TIPS YOU SHOULD KNOW BEFORE YOU GO
ATTIRE
Business meetings are generally conducted in formal attire in Peru. Men should wear formal, dark suits and women should wear comparable formal attire, whether that is a dress or formal slacks.
GREETINGS
When meeting your counterpart in Peru, it’s customary to introduce yourself with a handshake. As is the case in many Latin American countries, introductions can be much more informal than in other countries, which could include hugs and other embraces.
Don’t be surprised if you are met by a Peruvian in a very familiar manner. Similarly, during conversations, Peruvians tend to stand very close to one another and can even frequently touch one another, such as by putting their hands on others’ shoulders (again this is similar to other Latin American cultures).
The use of titles is important in Latin American culture, and so if someone has a title such as doctor, the titles should be used when addressing him or her.
BUSINESS MEETINGS
While it’s important to show up for scheduled meetings on time, Peruvians will often have a less strict adherence to schedules. Anticipate that your counterpart will arrive late to both formal and informal meetings. This should not be taken as a sign of disrespect as it is often not intended as one.
Once a meeting does begin, expect to have informal conversation for some time before starting the business conversation. Peruvians, similar to other Latin American cultures, place emphasis on trust and familiarity between parties in order to further progress business relationships.
DINNER AND SOCIAL OCCASIONS
More so than with business meetings, anticipate that your counterpart will arrive late for a scheduled social event. This is common in Peruvian culture. Social events are important to reinforce a personal relationship with your Peruvian counterpart as these relationships are important to progress business relationships as mentioned above. During social occasions it is a good idea to avoid conversations about the politics of the country, religion or a person’s ancestry as these can all be sensitive topics.
BUSINESS CARDS
As the official language of Peru is Spanish, it is strongly advised that you print one side of your business cards in Spanish. Similar to in other cultures, expect to present your business card to everyone in the room during a meeting. There will generally be no formal expectation in terms of handing your card first to the most senior person in the room.
GIFT GIVING
Obviously gift giving is a sensitive concern when doing business overseas. Local and international gift giving laws must be adequately reviewed prior to giving gifts to government officials in particular. However in Peru, as is customary in many countries around the world, it is not unusual to bring a gift of nominal value to social events, such as a dinner that takes place at your counterpart’s home. If you intend to bring a gift, common gifts are items such as flowers, wine, or chocolate. It’s also appropriate to bring a small trinket that is representative of your home country.
