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Understanding the Hidden Risks of Global Business

For many businesses creating a presence overseas can mean the difference between success and failure. Whether this means outsourcing manufacturing duties, appealing to foreign customers or being supplied from abroad, doing business globally can also leave businesses open to a number of risks.

"Doing global business has been on the rise for a number of years," said Sam Valeo, senior vice president of HUB International Midwest. "Everybody is trying to do something globally. And the current environment is one where we expect this trend to increase."

Risks to Consider 

While doing business globally can bring lucrative new markets and other benefits, it is important for businesses to recognize and understand the inherent risks. Failing to address these risks and obtain protection could cost a business substantially, and potentially damage both its domestic and international financial position.

Regulations

Different countries have different rules and regulations, making it essential for companies to research local regulations before commencing business there. Whether this means having the proper insurance or obtaining a permit, failure to comply with local regulations can seriously harm a business through suspended operations, fines or legal action.

According to Valeo, your insurance broker should perform the following on your behalf:

  • Provide you with the insurance regulations for each country you do business in. 
  • Access local insurance expertise in the event of a claim or to place local coverage on your behalf.
  • Supplement your local coverage with a Difference in Conditions (DIC) policy that essentially fills in the gaps and brings all of the local policies up to the same level of coverage and limits.

Politics

An unstable political situation in a foreign country, be it  the breakout of war or a different political party taking power can severely impact a company. Businesses should always consider how the political situation in a foreign country may affect their supply chain, employee safety, production processes or even consumer purchasing. Some countries may even seize business assets under certain circumstances and foreign businesses must be aware of that possibility and protect against it..

Political risk insurance is designed to help manage the financial implications that could negatively impact your business. Coverage is also available to protect your employees when working in foreign countries.

Overseas Supply Chains 

Even if a business doesn't directly operate in another nation, it likely relies on firms in other countries through its supply chain. Business owners should be aware of the potential risks facing their supply chains, including natural disasters, terrorist attacks, product shortages and wars. An event such as a tsunami in Asia can delay material shipments and throw off production cycles, forcing companies to deal with product shortages and lost profits.

You should conduct a supply chain analysis to determine your level of risk. Don't overlook your supplier's supplier as well. If your vendors are all relying on the same supplier, your business could be at risk in the event of a supply chain interruption.

Culture

Not taking another country's culture and customs into account can be a major mistake on the part of an organization. Business transactions are not conducted in the same way everywhere, and failure to understand cultural differences can be damaging. Additionally, companies need to consider the living standards of foreign countries, whether it relates to wages, unions or pension requirements. 

Language

Differences in language can also leave a company vulnerable. Not properly understanding what is being said in a business transaction can lead to confusion and miscommunication. These instances may lead to major problems if a company doesn't make sure that all parties fully understand a business transaction.

Corruption

Police and government corruption remains a serious problem in many foreign countries. However, the risks associated with conducting any business that is not above-board far outweigh any perceived benefits. It is vital that companies make sure they are in compliance with the law at all times.

Health

Health concerns should be forefront in companies' minds. Different countries have different health risks, and some countries may have substandard medical services. Taking into account employee needs is essential when it comes to health concerns in foreign countries.

While these and other risks can pose daunting challenges to businesses, planning ahead can make expanding globally much easier.

"If a company is considering expansion, one of the things they want to consider at the beginning of the process is how they're going to manage the risk of being in another country," said Valeo. "Risk advising really comes into play early in the game."

Fortunately, the proper insurance can greatly help companies conducting business globally. In addition to risk management advice, HUB International can provide businesses with information pertaining to foreign insurance regulations, along with coverage to supplement local coverage in the form of a Difference in Conditions policy.

The key is for businesses to analyze their operations, take stock of their needs, and take the necessary steps to protect themselves. 

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