A recent article over on ChiefExecutive.net for those who want to be a multinational did a great job of pointing out many of the risks that a company has to prepare for in order to become a multi-national. It zeroed in on the following seven risks:
- Country Risk
Third parties from countries with less mature corporate governance laws/regulations are more likely to create a compliance breach for a multinational firm.
- Industry Risk
Some industries are riskier than others. For example, food distribution — the risk of contaminants from unknown factories or partners with less rigorous quality control could be high and exposure you as the importer to massive liabilities and lawsuits. Defence is risky as well. Maybe only non-controlled components are being outsourced, but one accidentally exposed document can lead to very serious repercussions to the company and the executives, who could be held personally liable.
- Spend Exposure Risk
If a single vendor accounts for 80% or more of a specific business unit spend and something happens to that vendor, negating the ability of the vendor to meet its commitment, the entire business unit is then at risk.
- Compliance Risk
Failure to comply with import or governing regulations in the importing country from a product perspective can lead to entire shipments being size and destroyed. This is particularly bad in Europe where certain chemicals have been severely restricted or banned by RoHS, WEE, or similar EU directives. It’s also becoming a problem in North America, where substances such as BPA are finally being restricted or banned.
- Discovered Exposure Risk
The supplier, who may not be corrupt today, may have been corrupt in the past — and the corruption could come to light during the time in which your organization is doing business with the supplier. This could be devastating as it could bring your firm under investigation.
- Partner Disruption Risk
If the supplier is supplying a critical part or service, and is the only (significant) source of such product or service, it could jeopardize an entire product or service line and bring significant financial risk to organization as a whole, even if the spend on the supplier is less than 20%. (This risk is complementary to the Spend Exposure Risk.)
- Dependency Risk
If the organization cannot function without the supplier, then each of the above risks that apply to the relationship increases substantially. The financial risk could escalate from significant financial loss to bankruptcy as significant supply chain failures, as chronicled in Supply Chain Digest’s 11 Worst Supply Chain Disasters, can bankrupt even a multi-billion dollar organization.
And it mentioned the following risk, which is buried under discovered exposure risk, that should probably be front and centre:
- FCPA and Bribery Act Risk
Your subsidiaries or partners could violate the US FCPA or UK Bribery Act in the course of doing normal business in the country in which they are operating. Although both acts allow for a form of facilitation payments, as that is just the way business is done in some parts of the world, there’s a difference between a facilitation payment and an outright bribe and, in some countries, while they still exist, facilitation payments are not as common as they used to be as they adjust to doing business with the West. (Of course, they find new ways to extract blood from your stone, but I will leave that discussion to a global trade expert.)
More importantly, especially under the UK bribery act, even relatively inexpensive gifts — such as business dinners, sports tickets, or Christmas Party invitations — can be construed as bribes. Extra care has to be taken, especially if such gifts go to the winning party.
There can be great rewards to being a multinational that taps the opportunities in emerging markets from both a supply, and demand, perspective, but there are similarly great risks. Is your organization prepared? And more importantly, is your supply chain?