Com­plex Risks With­out Bound­aries

Lim­ited re­gional view can ob­scure op­por­tu­ni­ties

Bloomberg Businessweek (North America) - - Advertisement -

You might ex­pect that busi­nesses in coun­tries at sim­i­lar stages of de­vel­op­ment would share sim­i­lar con­cerns. Com­pa­nies in de­vel­oped economies, for ex­am­ple, might be more con­cerned by tech­nol­ogy-re­lated risks sim­ply be­cause they have more ac­cess to tech­nol­ogy, while busi­nesses in de­vel­op­ing coun­tries are fo­cused on a lack of em­ploy­ment and job op­por­tu­ni­ties.

That is true in part, but “The Global Risks Re­port 2016” pub­lished by the World Eco­nomic Fo­rum re­veals that it also misses a larger point.

The re­port shows that busi­ness lead­ers in Ger­many, Switzer­land and Nether­lands, are more con­cerned about the ef­fects of cy­ber at­tacks than any other risk to their com­pa­nies. Com­pa­nies in France, Italy, Spain and Por­tu­gal, how­ever, have more in com­mon with their peers in Sub-sa­ha­ran Africa, where the de­vel­op­ing economies of Namibia and Botswana are among more than 10 tightly grouped coun­tries in which un­em­ploy­ment and un­der­em­ploy­ment are seen as the main risk to do­ing busi­ness.

“Un­em­ploy­ment is a big con­cern in de­vel­op­ing coun­tries, and also the top con­cern in many Euro­pean coun­tries,” says David An­der­son, Di­rec­tor, Global Busi­ness De­vel­op­ment, Zurich Credit & Political Risk. “On the other hand, risks for emerg­ing economies are strongly driven by eco­nomic con­sid­er­a­tions that are seem­ingly re­moved from a given re­gion, such as the macroe­co­nomic driv­ers of tight­en­ing mon­e­tary pol­icy by the U.S. Fed­eral Re­serve, the strength­en­ing of the U.S. dol­lar rel­a­tive to emerg­ing mar­ket cur­ren­cies, the wan­ing of the com­mod­ity su­per cy­cle and the China slow­down. In both Europe and emerg­ing mar­kets, the political con­se­quences of un­em­ploy­ment can be se­vere and have a di­rect ef­fect on in­vestors, as we’ve seen with the rise of na­tion­al­ism in Europe and up­ris­ings in the Middle East and North Africa.”

Re­gional Mis­per­cep­tions

When a busi­ness is look­ing at where its growth op­por­tu­ni­ties could be, and con­sid­er­ing owned as­sets or sup­pli­ers, it might want to con­sider the po­ten­tially higher re­wards of emerg­ing mar­kets. Yet, as­sum­ing a re­gion’s risks cor­re­late to the level of its eco­nomic de­vel­op­ment can cre­ate mis­per­cep­tions that may leave a busi­ness vul­ner­a­ble. “Some­times when you take a strictly re­gional view, there can be a lack of un­der­stand­ing about the po­ten­tial ef­fects of global risk in­ter­con­nec­tions and how a busi­ness should re­spond to them,” says Linda Con­rad, Head of Strate­gic Busi­ness Risk, Zurich Global Cor­po­rate in North Amer­ica. “For ex­am­ple, you might hear a busi­ness leader say: ‘What am I sup­posed to do about some­thing like the price of oil?’ Peo­ple feel pow­er­less in the face of risks that they can’t con­trol, but they still need to have a strat­egy to cre­ate re­silience and lessen the ef­fects of them.”

“In terms of re­turn or lower costs, it’s im­por­tant to see the op­por­tu­nity side of a growth per­spec­tive,” says Con­rad. “You might not nec­es­sar­ily want to rule out a risky re­gion as a source of growth. What I would say is go in with your eyes wide open, which you can do through a deeper type of risk anal­y­sis. This in­cludes un­der­stand­ing the coun­tries, cul­tures and spe­cific lo­ca­tions that you might tar­get for growth, and de­ter­min­ing where your de­pen­den­cies might lie. When you do that, it can help you make bet­ter de­ci­sions with re­spect to cost of cap­i­tal, ex­pected re­turn on your in­vest­ments and risk mit­i­ga­tion.”

“What am I sup­posed to do about some­thing like the price of oil? Peo­ple feel pow­er­less in the face of risks that they can’t con­trol, but they still need to have a strat­egy to cre­ate re­silience and lessen the ef­fects of them.”

Busi­nesses need to look be­yond re­gional per­cep­tions of risks.

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