All companies and organisations face a host of risks that threaten their strategy, staff, profits and supply chains. Some risks are internal such as talent management (strikes, high turnover), others are external such as market and macro economic risks.
Below is a guide to the global risks and the tools such as business continuity which can manage these issues. Some of the risks be relevant for all organisations, while others will have just a narrow impact.
Belt and Road Initiative
China’s Belt and Road Initiative has been the most significant foreign policy initiative of the last decade. There have been countless reports, articles and books all trying to track, analyse and define the true meaning of the Belt and Road and what it means for the world.
The Belt and Road Initiative is intentionally flexible and vague allowing China to adapt it to different circumstances.
China has signed numerous Belt and Road agreements with countries which demonstrate alignment with Beijing.
But in reality the term has become shorthand for China’s overseas trade and investment and in particular the way in which Beijing uses its commercial might as a foreign policy tool.
Many countries have remained wary of China’s motives and have avoided signing any Belt and Road agreements. The US has made a point of avoiding the initiative but most remains China’s biggest investment target and its largest trade partner. India and many European countries have also resisted signing the Belt and Road agreement fearing it signals a close alignment with Beijing.
China (like other countries) uses investment as a tool the threat of cutting trade ties and the promise of increased investment to create compliance with other countries.
Australia has become a major exporter of coal, natural gas as well as agri-produce such as wine and barley to China. When Beijing started placing tariffs on these goods and starts a trade war it forces Australia to sit up and listen as well create risks for companies on both sides.
China accounts for around a third of Australia’s exports making it heavily reliant on its giant northern neighbour. Other countries such as Sri Lanka and Pakistan have taken on large debt burdens to build infrastructure which places them at China’s favour. The initiative is the ideal way for Chinese firms to expand overseas under the watchful eye of the government.
The Belt and Road has also been a major source of investment, particularly in infrastructure, power plants, road, rail, ports and pipelines helping to fill a huge gap in infrastructure.
For example the China Pakistan Economic Corridor CPEC has helped direct a reported USD 40 billion Chinese investment into roads, power plants and ports in Pakistan. However critics point out that through this lending Pakistan is becoming dependent on China.
The rapid and catastrophic loss of the world’s wildlife over the last decades is a direct threat to humans. Thanks to habit destruction, pollution, overfishing, hunting and climate change many species have been wiped out or are close to the edge of extinction.
While the threat to large charismatic animals such as tigers, rhino’s and pandas receive headlines the mass loss of billions of insects is just a serious.
If crops are not pollinated by insects it will leave vast swathes of land unusable for agriculture. This combined with the impacts of climate change means the consequences for humans are dire.
The corporate sector is starting to consider biodiversity risk. Recent global conferences have looked at how to measure biodiversity risk. The global move to incorporate environmental and social indicators in the corporate sector will help organisations identify where biodiversity losses can be prevented.
However much of the damage and destruction of the natural world is linked to a relatively small number of firms involved in deforestation, illegal fishing and other destructive practices.
Resilience has become a major buzzword in recent years. In a business context it means the ability of a business to survive and adapt to shocks, crisis and disasters. Resilient companies can cope with extreme change and internal and external shocks.
The key to a resilience is often described as preparedness for crisis, agility in strategic and tactical decisions as well as strong communications within key internal teams.
A truly resilient organisation can both adapt and thrive in seemingly hostile environments. Building resilient organisations is important but often difficult to measure until the resilience is tested.
Business continuity is the plan and preparations in place for a disaster befalling an organisation. Planning for disaster can include provision of alternative IT facilities, office building and deciding on key staff to ensure the business can survive any set backs. Plans and preparation need to be tested through scenario planning and exercise.
Business intelligence concerns itself with gathering information either covertly or overtly on the strategies, condition and changes of business operations. Business intelligence is usually divided into data gathering, data storage and knowledge management.
When using business intelligence the ability to collect and act on information is critical. Perhaps the most valuable business intelligence is exclusive or prior information about the activities of competitors can provide an important edge over those rivals.
Climate risk has only recently become recognised as a global risk. Climate risk can be divided into two main areas:
Physical risk is how the changing climate will wreak havoc on organisations across the globe. Rising sea levels, more frequent and deadly natural disasters, widespread crop failures, flooding and heatwaves will all disrupt and, in some cases, devastate cities, agriculture and society.
Cities sinking into the sea, whole regions drying up and experiencing mass crop failure and infrastructure failing due to excess heat. The corporate world is only belatedly recognising this reality and is taking measures to measure the risk through initiatives like the Task Force for Climate Related Financial Disclosures which attempts to measure climate risk in financial portfolios.
Transition risk means that policies and trends such as carbon taxes, emissions targets, legislation to decarbonise the economy will impact organisations. Increasing concern about climate change could see governments introduce punitive carbon taxes which make industries like coal mining financial unsustainable. Another example is the possibility of air travel becoming socially unacceptable as concerns about climate change rise.
Above all climate risk is a threat multiplier. Natural disasters, crop failures and flooding are not new. Neither are new laws and taxes impacting organisations. Climate change just makes all these things more frequent and with greater effect.
Climate change is leaving its mark on the world through increased natural disasters, rising sea levels and a collapse in crop yields. The fundamental changes that climate change represent will shift global power balances.
The shift away from fossil fuels and towards clean energy will reduce the power of oil and gas giants like Saudi Arabia toward renewable energy producers. The worst effects of climate change are predicted to hit South Asia, the Middle East and Africa.
Collapsing freshwater supplies, extreme weather and failing crops will create hostile environment in many parts of the world which will be impossible to develop resilience against. The result will be economic collapse, an angry populace and severely weakened state capacity.
It is difficult to predict accurately how climate breakdown will impact global geopolitics, but it could spark a wave of conflict as states blame one another for the effects of climate change and huge levels of migration create tensions between states.
War is as old as civilisation but in the modern world conflict has entered into new domains. Guns, tanks and planes have been joined by cyber, hybrid conflict and drone warfare. New theatres such as the Arctic, social media or even outer space have become a reality.
Conflict creates massive risk, cost and uncertainty for businesses. Operating in warzones is undesirable as it puts lives and assets at great risk as well as destabilising countries making them on
The onset of conflict may be good for some firms such as weapons manufacturers, but for the most part war and conflict create huge burdens on economies which rarely benefit business. The spectre of conflict in places like Somalia, Sudan, Yemen, Afghanistan, and Palestine has repelled all but the most intrepid investors. Often only mining, NGOs, oil/gas plus fast-moving consumer goods are the only firms that will operate in such tough conditions.
However, there are rewards for those brave enough to invest in post-conflict or fragile states. Often these places will have been isolated from competition and ready to enjoy a post-conflict boom. Unfortunately, many post-conflict countries see war return after enjoying peace.
The world is becoming more connected. Internet usage grows each year as more people go online, particularly in developing countries. Increasingly the internet is connecting more to physical things, everything from cars to toasters to infrastructure.
Online crime is overtaking physical crime because of the anonymity afforded online. Criminals can easily hide their tracks, send phishing emails and start social engineering scams from the safety of another country.
All of this creates a huge risk to organisations who are dependent on the internet to sustain their business. A devastating cyber attack can destroy reputations, cost millions and at worst leave organisations without critical IT systems for extended periods.
Countries around the world have eagerly taken up the chance to use cyber war as a way to spy, attack and disrupt their enemies. A shadow war where it is unclear who could be attacking and where the attacks will land.
Espionage is usually associated with stealing military or state secrets, but sensitive commercial information can be just as valuable. The theft of technology, knowledge of a rival’s strategy or theft of their intellectual property, or even sabotage of their assets can all provide a competitive advantage. Espionage can spill into the geopolitical sphere via companies as very often countries and corporations work in tandem to collect information that will help state and corporate sector.
The biggest data leak in history was discovered at Marriott Hotels in 2017 where over 8 million records had been leaked over 8 years. Despite all the credit card information that had been stolen, there were no recorded financial losses. Why? Because a state intelligence agency was behind the data leak. The movements, meetings and spending of politicians, diplomats and high profile businessmen is of enormous interest to intelligence agencies, this kind of knowledge can be leveraged for commercial gain.
Organisations need to have strong information security controls and if they are in a particularly sensitive industry counter-intelligence measures to ensure they do not fall victim to corporate espionage.
When threats emerge rapidly and risks unfold in a rapid unpredictable manner we call this a crisis. When it happens to organisations, they need to be ready to react. Crisis management is the discipline that prepare organisations for any emergency. A well-prepared team with strong communication skills drawn from the key parts of an organisation the first step. Those that fail to prepare face the potential for chaos and unpredictable.
Establishing plans, processes and protocols is the next step. While plans are rarely used in a crisis -the act of preparing and writing a plan is ideal preparation.
As Dwight Eisenhower said: “Plans are worthless, but planning is essential”
The next step is testing plans through scenarios or desktop exercises will help cement the team and test the effectiveness of the plans. Lastly it is important to remember that a crisis is by its nature highly volatile. Flexibility is key when creating plans and teams. Rather than plan for specific events make sure they are generic and able to deal with any crisis.
Natural Disasters are a major risk for organisations and people across the globe. Typhoons, hurricanes, earthquakes, volcanos, landslides and others kill thousands of people, destroy homes and businesses and disrupt lives across the globe. Much of the world has become better had predicting and preparing for disasters.
Early warning systems, resilient earthquake buildings, mass communication systems and rapid relief responses can all alleviate the worst impact. Countries can rebuild infrastructure with increasing speed.
Climate change is creating more frequent and more deadly disasters which even the most advanced and resilient countries will struggle to handle. The California forest fires are a good example of a natural disaster overwhelming an area making it difficult to recover and seeing widespread damage and destruction.
Due diligence is a process used by bankers, accountants and lawyers when considering a take over, merger or investment in another company. Due diligence but can easily applied to political risk situations. Any investment into a new country or new business or entry into a new sector is accompanied by due diligence.
Due diligence is looking under covers to look for any problems the company or investment target may be hiding. This could be bad loans, hidden legal problems or risky assets. Due diligence should also shed light on the future prospects of the company and how well it will fit with the acquiring firm.
Financial crisis, currency, economic collapse, hyperinflation can devastate countries, spread globally and ruin companies. Emerging economies are particularly susceptible to financial risk, but the great recession of 2008 demonstrated that financial crisis can hit developed economies.
Organisations that want to protect themselves against global risk must consider their exposure to emerging economies, currency risks, inflation, interest rate changes and a host of other indicators which are typically complied by economists.
Emerging markets are countries which are experiening the shift towards a developed economy. Typically they are experiencing industrialisation and characteristics of developed markets. They usually enjoy growth potential but high volatility in terms of markets and currency fluctuations. Turkey, Russia, South Africa and Brazil are all examples of emerging markets.
For investors they represent risk but also reward as returns on investment will often be higher in these countries. There is an index of emerging markets MSCI but a good rule is that if politics is more important than economics when making an investment decision then its an emerging market.
Investing in emerging markets is not done likely a thorough understanding of the political and economic landscape as well as the market analysis. Companies are attracted to these markets for as they can often experience high economic growth and offer untapped markets. In recent years frontier markets have emerged as term for countries even more risky than emerging markets.
Emerging risks are those on trends, threats and even opportunities which are not yet fully understood or known. Typically, these can be threats which are recognised but not acted upon. In a different category are Black swans which are threats which can not be foreseen.
Gray rhinos is another term used for risks that are recognised but have been overlooked and little action has gone into mitigating against them. Organisations often miss out emerging risks and opportunities as they lack the flexibility to recognise
Energy is a critical element in the global modern economy. Nearly every activity and economic activity depend on easy to access energy. Countries without widespread access to electricity remain underdeveloped. The widespread use of fossil fuels such as coal, oil and gas has powered modern economies, but at a heavy price in terms of climate change and pollution.
The adoption of oil and gas in particular created a new dynamic in global politics – handing massive power to oil producing countries, especially Saudi Arabia which the world relied upon for cheap energy.
The world remains reliant on fossil fuels and although some countries like the USA have become energy independent, others like China remain heavily dependent on imports. This dependency is a major issue for many countries costing them a great deal of money but also political capital.
The emergence of cheap clean energy such as solar and wind power has started to change the balance. Countries such as Morocco, Costa Rica and Germany have adopted renewable energy on a massive scale, reducing expensive imports and reducing carbon emissions. The success of these schemes sets a template for other countries.
However fossil fuels remain cheap and easily available and much of the world’s energy infrastructure, including subsidies and tax breaks, is based around them making change difficult. Fossil fuel firms have powerful political backing – making lobbying governments. As a result oil, gas and coal infrastructure continues to be developed and financed.
Environmental Social and Governance (ESG) Risk
Organisations are becoming more aware of their impact on the environment, whether that is through reducing to waste, carbon emissions or reducing the damage caused by infrastructure developments. Investors, employees and customers are looking more to companies they perceive as ethical and shunning those with poor track records of dealing with environmental and social issues.
Environmental, Social and Governance (ESG) focused investing is focused on avoiding harmful activities such as polluting (like oil and gas firms) or unhealthy things such as tobacco. Other firms like Leapfrog have gone further and have promise to make impact investments which make a positive impact on society (reducing carbon emission, expanding education, increasing financial access to the poor etc). Investors are increasingly keen to make sure their actions are “doing good” and.
This has created a vast and ever-growing market of ESG friendly financial products such as green ETFs (exchange traded funds) or Green bonds which promise demanding that firms are ESG friendly or compliant.
As the sector grows risks increase. Who determines what counts as ESG friendly way. How do we know if companies are in fact acting in an environmentally and socially manner. The EU took a major step in trying to standardize the sector by publishing a taxonomy of sustainable finance which allows firms to categorise their economic activities and how they will affect carbon emissions.
As ESG investments grow in popularity so will the risk inherent in this sector.
Fragile or conflict states are characterised by conflict, instability, and poor economic performance. Countries like Somalia, South Sudan, Zimbabwe, and Myanmar are examples of fragile states. These countries often lack strong institutions, are prone to corruption and are generally avoided by international investors.
However fragile states can offer superior returns in a high risk environment. Fragile states often hold valuable mineral or metal sources, luxuries and fast growing albeit volatile economies.
Frontier markets are those countries which are enjoying economic growth and prospects but are also characterised by instability, reliance on a specific sector and with small undeveloped stock exchanges. Frontier markets are generally open to foreign investment. Frontier markets offer opportunities to investing firms but also present more risk than emerging markets.
Sri Lanka, Vietnam, Kuwait, Kazakhstan and Nigeria are all typical frontier markets. As these countries become more stable and their economies become more diverse they may become emerging markets.
Geoeconomics is when countries use trade and investment and commerce to further their strategic goals. This can be seen clearly in the Belt and Road Initiative where China is using Chinese firms to invest overseas which will help bind these target countries to China’s foreign policy objectives.
Chinese investment in Africa has meant many countries on the continent giving Beijing diplomatic support. Pakistan has become a major Chinese ally. In part thanks the China Pakistan Economic Corridor which has led to massive investment by Chinese firms in Pakistan. In return Pakistan is “an all weather ally” particularly in relation to India which China views as a threat.
The US has used trade sanctions on the likes of Iran and North Korea to push those countries into submission. Sanctions can suppress economies, but they also create resistance and pushback from those receiving them, so are less successful in removing governments.
Geopolitics is the study of how geography effects politics. Geopolitics connects global power to geography. Natural resources, rivers, mountains, seas and lakes as well as climate and demographics can all contribute to, or take away from political power. Geopolitics is largely interchangeable with international relations and takes into account trade, economics as well the alliances and organisations such as the WTO and UN that bind the world’s nations.
Understanding geopolitics is critical to understanding global risk. So many global risks from climate change, pandemics to more obvious threats such as war and terrorism are shaped by geopolitical forces. Organisations and companies regularly lose money, reputation and access to markets thanks to a poor understanding of geopolitical risk.
Many western companies were hit by the trade war which erupted between the US and China over the Trump administration but the growing tensions were apparent even before Trump was elected.
The last few years have seen many prominent leaders such as Bolsanaro and Trump rise to power with an anti-globalist, nationalist agenda. Many people feel that the benefits of globalization have not reached them and their fears have often been stoked by a wave of fake news made possible by social media platforms.
The next decade is likely to see a more multipolar world as China, India, the EU and other countries become more prominent. At the same time it is not clear whether the unfolding climate crisis could push countries to cooperate or drive them apart.
Global governance is the ability to manage cross border or international affairs, this can mean climate change, a pandemic, wars and terrorism. The world has become more interdependent and a host of organisations such as the International Monetary Fund, World Trade Organisation and United Nations has risen to help manage global affairs. Global agreements such as the Paris accord for limiting carbon emissions are example of co-operation to create a global public good – namely a low carbon low and reducing the damage from climate change.
Some argue that the current model of the nation state is unravelling because they are unable to control global market forces, nor deal effectively with global crisis like climate change. Instead they are reliant on multinational corporations to provide jobs while non state actors have become more powerful. Above all nation states are increasingly unable to provide economic security for their citizens.
Some states are looking to increase cooperation to overcome this, the EU is the perfect example of this. When 27 states band together, they can collectively bargain on trade and standards and maintain a powerful global force. Others like the UK which decided to leave the EU view the best option for the state is to reduce regulation and attract inward investment to ensure prosperity.
Gray rhinos are highly probable, high impact event but neglected risk. Scientists have been warning about the risk of a major pandemic for many years. But because in particular western countries have not experienced anything like Coronavirus for over hundred years the risk was widely ignored.
As a result many countries were unprepared, this stands in sharp contrast to many East Asian countries like Vietnam and Taiwan who had experienced more recent outbreaks of SARs. As a result they were fare better prepared when Coronavirus arrived.
Human Rights Risk
Human rights are a contested field. Attempts to apply universal human rights have been resisted by authoritarian governments as well as those who believe them to be Eurocentric. Despite this resistance to human rights they remain a popular principle across the globe.
Many organisations that become involved in human rights abuse face a backlash from the public. Countries that routinely ignore human rights such as China, Saudi Arabia and Iran face a massive reputational problem. While they may try and overcome this through careful public relations campaigns the fact remains that these governments are not trusted.
Human rights risk has impacted companies such as Volkswagen, Disney and McKinsey. These have all faced negative publicity from the fact they that operate in Xinjiang region of China which is home to mass internment camps. The local Uyghur population have separatist sympathies and are often forced into these centres for “re-education” which allegedly involves forced labour.
Horizon scanning is an exercise at looking at up coming threats and opportunities. Trends, threats, changes and prospects which have appeared but are not yet impacting the organisation. Ideally the organisation will be prewarned and more prepared for the threats that do occur and more able to take advantages of new opportunities that arise. In many cases these threats or opportunities will not arise
For example the prospect of enhanced artificial intelligence has been in the news for the last few years. Horizon scanning would examine how the application of artificial intelligence could help or hinder the organisation, highlighting how the topic should be explored.
International investment has soared over the last decades as firms grow and view overseas expansion as a means to grow further. Barriers to entry around foreign investment have also fallen around the world as countries compete to attract new firms bringing the prospect of jobs and prosperity. However there are sings that this tide is turning, with nationalism and protectionism on the rise, global investment could be much more challenging in the future.
China is the biggest market to open in the recent decades – welcoming foreign companies to a previously closed economy, other formerly Communist countries such as Vietnam, Kazakhstan and Laos have followed suit.
Chinese firms have also started investing in every corner of the globe. At first in raw materials but later diversifying into every imaginable sector, including infrastructure, media, manufacturing and agriculture.
Cross border investment is highly desirable, but also poses major risks to any firm. Expanding into another country leaves creates new political, legal, geopolitical and reputational risks. Any overseas expansion needs to be carefully considered and planned considering all the potential risks.
For example firms that have invested in Russia or China were hit hard by the geopolitical forces that lead to US and EU imposed sanctions and a US led trade war.
Migration is a global phenomenon. Millions of people every year move across borders. In 2019 there were an estimated 272 million migrants, or 3.4% of the world’s population. People move for many reasons, to escape their environment thanks to lack of economic opportunities, disasters or to avoid persecution. Recent large scale migration includes the exodus of Syrians to neighbouring countries to flee the civil war. The plight of Rohingya people leaving Myanmar for Bangladesh to avoid persecution as well as the steady movement of sub Saharan Africans towards Europe in search of better prospects.
Migration is often political unpopular, countries that host migrants often see the public and politicians blame them for crime and being a burden on the state. In fact migration can very often bring economic benefits to the host country such as a bigger work force and new entrepreneurial energy.
However large scale migration is a risk because of the dangers involved for many people, the huge costs incurred by host nations which are often not that wealthy (the biggest refugee host nations are Pakistan, Turkey and Lebanon) to attempt to house and feed so many people.
Multinational Alliances & Institutions
International Alliances, multilateral institutions and cross border associations are key to managing issues in the modern world. They have multiplied since the end of the second world war creating a complex web which defines the world’s diplomatic, financial and military architecture.
The European Union, United Nations, African Union, International Monetary Fund and the Asian Development Bank are just a few of these institutions. Many view these institutions as evidence of a cooperative world and of the strong growing bonds between countries. Others see them as a threat to sovereignty or useless talking shops that waste money and achieve little.
In recent years these criticisms have been encouraged by a rising tide of nationalism. Alliances such as the EU have suffered as a member (the UK) leaves, while others such as NATO have been criticised for lacking relevance in the modern world. Despite criticisms these alliances are here to stay and look set to be joined by new institutions such as the Chinese led Asian Infrastructure Investment Bank (AIIB) which symbolises China’s growing global role.
Natures resources are unfairly distributed. Supplies of minerals, metals, food and fuel have no respect for national border. The demand for these resources can This distribution can encourage trade or conflict – decisions driven by political choices.
The battle for the world’s fish is another example EU states battle (peacefully) over fishing rights. North Korean boats intrude into Russian and South Korean waters in search of fish.
Rare earth metals are a group of 17 metals used in the manufacture of batteries, smart phones, jet engines and wind turbines. They are crucial to the modern defense industry and China controls as much as 90 percent of the world’s supply of these metals. If China decided to restrict the export of these hard to mine metals it would cause chaos in certain manufacturing sectors.
Geopolitical and political risk overlap – both mean the risk of negative outcomes as the result of political change or instability. Political risk has more of a focus on a particular country, so a change in government in Indonesia may result in a less favourable investment climate which turn will impact on an organisation’s decision to expand in that country.
Geopolitical risk has a more cross border, international element, considering scenarios such as weaker international alliances resulting in growing international instability. Monitoring and understanding how political risk can impact an organisation is critical to protecting it. Failure to understand changes in political risk can hit firms hard.
For decades Australian firms grew rich off ever growing demand from China. But the last few years have revealed growing political tensions between the two countries which exploded into a trade war. Ideally this would have been the time to try and diversify away from dependence on China.
In 2020 China hit Australia with a series of sanctions official and unofficial. Beijing hit Australian barley with 80 percent tariffs and ordered power plants to stop buying coal. Wine and many other goods are likely to see tariffs imposed in 2021 unless Australia changes policy to become more China friendly – allowing Huawei to invest in its telecoms infrastructure and loosening ties with the US.
Tech companies have taken centre stage in the modern economy. Ventures such as Facebook, Baidu, Apple and Google dominate the corporate world. Countries see a thriving tech sector as highly desirable and hundreds of copycat Silicon Valleys have sprung up across the world. The race to develop new tech such as quantum computing, advanced AI as well as commercial application give countries a military and commercial advantage over rivals.
Tech firms derive a lot of their power from their ability to gather and hold huge amounts of useful data on the users of their products. This allows them to sell huge amounts of information to advertisers. It also gives them access to more sinister powers such as information on users more likely political leanings, which in turn can be used by operatives to push adverts and influence elections. Through monitoring of internet usage habits firms can gain an idea of people’s strongest desires, beliefs and habits.
Tech competition has spilled into the geopolitical sphere, China has longed banned US firms such as Facebook and Google from its domestic market. The US recently banned Chinese app TikTok over fears that it is connected to Chinese intelligence. Behind these bans is a desire to ensure that rivals do not end up harvesting the data of their population and that home grown ventures retain a competitive advantage.
Terrorism is the acts of violence to achieve a political aim. Terrorism has become much feared in the West, but countries in Asia and Africa are far more likely to be the victims of terrorism. Terrorists biggest weapon is the fear they instil in others. The presence of terrorism repels outside investors, brings governments to negotiate with terrorists or push resources into fighting them – either strategy.
For organisations the threat of terrorism means additional risk to employees and other assets. Some organisations work in particularly risky parts of the world and are exposed to terrorism. Diplomats, oil and gas workers and NGOs are all examples of those in harms way. Organisations should invest in security training for individuals as well as a plan to protect staff through security staff and protocols.
Reputational risk is the potential damage inflicted when the public, investors, staff and other stakeholders lose trust in an organisation or institution. Reputation takes many years to build but can be easily and quickly lost through poor publicity thanks to political or personal scandals, the launch of a badly designed product or service.
Reputation is rarely lost in one single action, but can be eroded over time through a series of poor decisions and events which steadily undermine the standing of an organisation. Reputation is particularly important in an economy where many firms are valued on intangibles such as brand value and intellectual capital.
Despite the dangers of reputational risk, most firms do not have a plan to protect it relying on crisis management. Managing reputational risk means first assessing the organisation’s reputation to see whether it is strong, neutral or weak and whether this matches with reality.
If reputation is strong, but reality is that it is not performing as well, then this gap needs to be closed. If reputation is poor in comparison to reality then a plan should be put in place to highlight strong performance with the media and key stakeholders. But it should avoid short term “spin” measures to artificially enhance reputation.
Supply Chain Risk
Supply chains are a key feature of the modern economy. Metals, components, agri-produce, electronic goods and millions of other goods are shipped, driven and flown across the world to satisfy industrial and consumer demand. Much modern trade is done on a just in time basis so goods do not sit in warehouses for long.
This makes supply chains prone to disruption– natural disasters, conflict, pandemic and industrial action such as strikes can quickly halt the movement of goods. Even short disruptions can cost millions, which is why understanding and mitigating supply chains is so important.
Supply chains can also mean reputational issues. Resources mined from illegal mines that drive conflict such as Myanmar or timber from unsustainable sources. Clothing from poorly run, dangerous factories which endanger or even kill workers means that multinational companies face anger from customers and shareholders and even their own staff.
International trade has exploded in the last decades. Large multinational trade agreements have become more common resulting in a complex web of agreements between states around the globe. These agreeements and modern logistics has made trade as simple and risk free as it has ever been in history.
However many risks around trade remain. Trade has always been used as a tool of politics and warfare. From Napoleon’s continental system to the tariff escalation or the present trade war between the US and China. Organisations that profited from growing trade between nations can see it grind to a halt as politics overrules commerce.
International trade agreements have been blamed for many problems deindustrialisation, loss of sovereignty and underdevelopment. The last few years have seen free trade have been put on the back foot. Despite set backs international trade is going a critical part of the global economy and understanding the risks it faces will be key.