Risk resilience key in offshore business relationships
Published 13 July 2021
In 2020, senior executives with a business presence beyond their own borders faced into extraordinary challenges that continue to test the economic, environmental and political resilience of countries worldwide. These conditions, such as disease, climate and weather related catastrophes and political unrest, show no sign of abating, making the choice of overseas markets, business partners and supply chain providers a critical factor in risk management for company directors concerned with maintaining or improving resilience.
To support strategic decision making, the 2021 FM Global Resilience Index ranks the resilience of 130 countries and territories against economic, risk quality and supply chain resilience. The findings are grounded in data sourced from the United Nations, the International Monetary Fund, the World Bank and the World Economic Forum.
Markers for risk assessment include urbanisation, productivity, cyber risk, natural hazard exposures, control of corruption and mitigation measures as well as public health, oil intensity and more. These risks have strong implications for businesses that interact with overseas companies. For example, supply chain resilience is a key concern for businesses, requiring an understanding of the quality of transport and utilities in operational systems in order to evaluate where to sell products, expand activities or enlist new suppliers. Political risk is also a major consideration for Australian businesses with an on the ground presence in offshore markets.
Instability evident in many country’s resilience ratings
The index itself demonstrates volatility - with 56 countries or territories changing their previous positions by at least 10 places in natural hazard exposures, 38 in oil intensity, 24 in inherent cyber risks and 17 in political risks. Dramatic movements in ranking or in any one area demand closer examination by senior executives when making business decisions.
In terms of how overseas business partners or investors may view Australia, we are in the first quartile of risk resilient countries included in the index.
Top 10 countries in resilience
9. Central United States
10. Eastern United States
Ukraine recorded the greatest increase in overall resilience from 63 to 84 due to improved productivity, oil intensity, natural hazard exposures, inherent cyber exposure and control of corruption.
Also on the rise, Taiwan moved up 14 places to 29th, reflecting improvements in rate of urbanisation (increasing by 42 places), natural hazard risks and the quality of its transport and utility infrastructure.
Bottom 10 countries in resilience
Nicaragua slipped by the greatest amount: by nine places to 121 on the list of due to increases in cyber and political risk.
Building resilience based on risk insights
Understanding the risks involved in doing business with other nations empowers strategists and decision makers to set contingency measures in place, such as sourcing alternative suppliers or geographically relocating some operations to reduce risk in any one area.
Business insurance tools such as political risk cover or surety bonds and trade credit protection can also help with spreading or transferring some exposures. To find out how insurance can be used to improve your business’s resilience get in touch with one of our business specialists.
Gallagher provides insurance, risk management and benefits consulting services for clients in response to both known and unknown risk exposures. When providing analysis and recommendations regarding potential insurance coverage, potential claims and/or operational strategy in response to national emergencies (including health crises), we do so from an insurance and/or risk management perspective.