Risks Management on the Global Stage

June 26, 2012 by  Filed under: Management 

Many organizations have been tempted in recent years by the promises of the significant return on investment that comes with the successful expansion into foreign markets. While these benefits are certainly hard to ignore, with such expansions comes innumerable risks from any number of sources, not the least of which is the shifting political climate currently playing out on the global stage. Though several companies have indeed seen outstanding results from the undertaking of such ventures, many have had to face a great deal of difficulty and loss as a result of unstable political circumstances in their selected markets.

Recent studies conducted with the goal of gauging political risk factors and their severity on a global scale, have shown that these threats have risen in nearly twenty countries in the last year. While the three primary risks to corporate governance were ruled to be issues of unexpected shifts in regulations, new restrictions, and contract breaches, a great many other factors have been pointed out as well including problems with weak governments, economic uncertainty, and other politically oriented risks. Risks or no risks, companies are not shying away from these challenges, with the result that projections show foreign direct investment increasing by nearly 15% this year alone. The most complicated problem to come out of this situation is the fact that many of those countries that represent the greatest risk factors also represent those which offer the greatest opportunities. While any number of socio-political disturbances can bring about negative consequences for an organization, and while foreseeing and making preparations to handle such unruly eventualities can be quite a challenge, there are steps that can be taken to help mitigate such risks.

Perhaps the simplest and most obvious means a company has of helping to protect themselves from these problems is through the purchase of political-risk insurance. While the use of these measures has been fairly low in recent years, this has begun to change, even as the options offered by these policies have begun to expand, covering more and more risk factors to accommodate the current political unrest affecting many countries. However, other companies have sought to avoid financial solutions and minimize their risks by limiting their presences in any region, only sending in the bare minimum resources with which they can function. These strategies generally work through a shared-services technique of restricting their presence by making use local resources as much as possible, creating a centralized service method within that area.

Many companies seek to reduce their chances of encountering these risks through alternative strategies. These risk management strategies mainly involve cooperating and allying themselves with local businesses, namely through joint ventures, and with governments of the region in question as a means of alleviating and avoiding any confrontation, as well as nurturing friendly relationships that may prove useful should challenges arise.Another such tactic which has proven itself effective is in the hiring of local workers who can help provide the company with valuable insight into the political climate in order to help monitor, predict, and plan against possible threats. Alternatively, many companies seek to install themselves as a friendly presence within a region by sending their employees to these areas with the goal of becoming a part of the socio-political landscape and developing a human connection with the local populace rather than standing out as foreign corporate strangers.

” Corporate Compliance Insights is a knowledge-sharing forum designed to educate and encourage informed interaction within the corporate compliance, governance and risk community. Additionally CCI offers an events calendar, professional company directory, leadership library and compliance jobs board. Visit http://www.corporatecomplianceinsights.com “

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