Managing international risk Navigating in dangerous waters.
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Transcript of Managing international risk Navigating in dangerous waters.
Managing Managing international riskinternational risk
Navigating in dangerous Navigating in dangerous waterswaters
TM Ch 6-2
The impact of risk on The impact of risk on corporate goals corporate goals
GovernanceCorporate Culture
InfrastructureAssets & Resources
GovernanceCorporate Culture
InfrastructureAssets & Resources
Suppliers & PartnersEconomic Climate
Country CharacteristicsPolitical Environment
Suppliers & PartnersEconomic Climate
Country CharacteristicsPolitical Environment
ProductsProducts
GoalsGoals
Internal RisksCorporate controlsInformation quality
CompliancePrivacy
CommunicationsSecurity
ReputationEthical Behaviour
Internal RisksCorporate controlsInformation quality
CompliancePrivacy
CommunicationsSecurity
ReputationEthical Behaviour
External RisksMarket failures
Economic volatilityRegulatory climate
AccidentsDisasters
Environmental hazardsCyber attacks
Political instability
External RisksMarket failures
Economic volatilityRegulatory climate
AccidentsDisasters
Environmental hazardsCyber attacks
Political instability
ProcessesProcesses
CustomersCustomers
Intra-corporateIntra-corporate External EnvironmentExternal Environment
TM Ch 6-3
A comprehensive view of A comprehensive view of riskrisk
TM Ch 6-4
The risk management cycleThe risk management cycle
TM Ch 6-5
Early warning signs of riskEarly warning signs of risk
• Venture is very different from previous ventures
• Scope, objectives and deliverables not understood
• Technology is unproven or immature
• Expectations for performance are unrealistic
• Costs, schedules, metrics are absolute or ranges too wide
• Venture depends on a high R&D component
• Permits not understood or applied for
• No contingencies built into planning
• Participants “hedging their bets” or not devoting full time and attention
TM Ch 6-6
Risk checklist 1Risk checklist 1
External (unpredictable and uncontrollable)
• Regulatory
• Natural hazards
• Accident, vandalism or sabotage
• Unanticipated environmental or social impacts as a result of the venture
• Failure in infrastructure, design, financing or planning
• Political unrest
• Threats to health from contamination or disease
TM Ch 6-7
Risk checklist 2Risk checklist 2
External (predictable but uncontrollable)
• Market risks
• Operational
• Environmental or societal impacts
• Currency fluctuations
TM Ch 6-8
Risk checklist 3Risk checklist 3
Internal (Non-technical but controllable)
• Management
• Excessive reliance on one individual
• Human error
• Delays due to regulatory approvals, labour shortages, material shortages, unforeseen conditions, accidents, sabotage
• Cost overruns due to delays
• Cash flow squeezes
• Loss of profits or other benefits arising from other risks
TM Ch 6-9
Risk checklist 4Risk checklist 4
Internal (Technical but controllable)
• Changes in technology, new technologies are too complex
• Technology does not perform
• Technology is not able to fulfill the role expected of it
• Design problems arise
• Overall complexity is beyond management capabilities
TM Ch 6-10
Risk checklist 5Risk checklist 5
Legal (generally controllable)
• Licenses
• Patent rights
• Contractual difficulties
• Outsider or insider suits
• Suits against competitive practices or monopolies
• Force majeure
TM Ch 6-11
Template for charting risksTemplate for charting risks
Type of
risk
Resources
at riskThreats
Modifying
Factors
Consequences
(to be avoided)
TM Ch 6-12
Example of a management Example of a management dashboarddashboard
TM Ch 6-13
Main risks faced in Main risks faced in developing countriesdeveloping countries
• Corruption
• Inadequate protection of intellectual property
• Protectionism through tariff and non-tariff- barriers
• Infrastructure failures
• Cultural misunderstandings
TM Ch 6-14
Managing currency risksManaging currency risks
• Forward contract
• Futures contract
• Money market hedge
• Contractual risk shifting and sharing
• Pricing adjustments
• Exposure netting
• Foreign currency options
TM Ch 6-15
Managing country risksManaging country risks
• Research and planning
• Foreign financial involvement
• Risk sharing
• Planned domestication
• Good corporate citizenship
TM Ch 6-16
Managing commercial risksManaging commercial risks
• Evaluation of foreign firm
• Use of irrevocable letters of credit
• Payment in advance
TM Ch 6-17
Typical risk management Typical risk management strategiesstrategies
Type of risk Key concerns Manager’s response
Currency
Unfavourable shifts in value of currencies prior to final settlementChanges in value of foreign assetsUnfavourable changes in value of revenue stream
HedgingForward contracts
CountryExpropriationDiscriminatory treatment
Market analysisPrior government guaranteesRecourse to treaties
CommercialNon paymentAssociation with poor reputationCommercial disputes
Intelligence gatheringCredit checksSeek out referencesContract provisionsLegal recourse (arbitration, suit in courts)Credit insurance
Project riskCost overrunsDelays
Implement project management systemsDemand performance bonds from suppliers
PersonnelSecurityHealth
Security trainingContingency plansHiring security consultantsMedivac and hostage insurance
“Acts of God” (force majeure)
Weather damage (storms, sudden changes in climatic conditions, etc.)Environmental damage (earthquakes etc.)
Insurance
TM Ch 6-18
International assets: a International assets: a checklist for managerschecklist for managers
Type of asset Key concerns Manager’s response
CapitalRepatriation of profitsRepatriation of capital
Get special prior government assurancesRely on international treaties and agreements
Real estate (land, buildings)
Ability to purchase or leaseSecurity against expropriationValuationAbility to sell freely
Buy insuranceGet special government guaranteesRely on treaties and agreements
Human resources
MobilityPhysical safety (e.g. against terrorism)Leaks of informationAbility to retain
IncentivesSecurity measures
Intellectual propertyUnauthorized appropriation (imitation and use without compensation)Unauthorized disclosure
Security measuresMonitoring marketplace
Partnerships
What resources to commit to the relationshipUnauthorized disclosure
Pay close attention to partnersManage the relationship
Moveable property and equipment
TheftDamage
InsuranceSecurity measures