In today’s global economy, where almost every business is a multinational one, the prevention and management of geopolitical risk is high on the agenda for many C-level executives. And according to the recent World Economic Forum’s Global Risks 2015 report, it’s only expected to continue.
From the forum came talk of the most likely geopolitical risks, which include:
- Interstate conflict, such as Russia’s annexation of Crimea
- Failure of national governance
- Weapons of mass destruction
- State collapse or crisis
So when doing business in developing and/or less stable parts of the world, the best thing executives and business owners can do is be prepared for anything and everything. Too simplistic? Maybe, but it’s true. Risk professionals have to think about everything from company assets and investments, to personnel located around the world and all possible threats physical and political.
Consider the following strategies for managing geopolitical risk in 2015:
1. Think across country lines.Political hotspots can emerge in every corner of the world, even where there might have previously been peace, and is often driven by any number of underlying political, economic, and societal factors. When purchasing business insurance, choose multi-country credit and political risk programs. Such policy programs offer more wide-reaching regional or global coverage, and will protect your business from risks that include political violence, currency inconvertibility, expropriation, non-payment, and contract frustration.
2. Protect intangible, as well as tangible assets.In addition to political risk, multinational businesses are often threatened by international vendors or partners whose credit falters, or those who don’t pay. This falls under the umbrella of risk presented by state collapse or crisis; when a government collapses or descends into crisis, it often loses its ability to honor financial obligations, and this often spreads into the private sector, creating a chain reaction of default. Executives might consider purchasing structured credit insurance.
3. Know how the business will respond to conflict before conflict occurs.Terrorist-lead or politically motivated attacks happen without warning, so it’s vitally important to have an effective crisis management plan in place even when it seems there is no need. The development and testing of crisis plans can guarantee effective communication between employees, and ensure everyone is kept safe in the event of an emergency.