The 10 biggest risks to your business right now

MT EXPERT: Running an international business? Charles Hecker lists the 10 things you need to look out for.

by Charles Hecker
Last Updated: 22 Dec 2014

If you’re having difficulty digesting the international news these days, you are in good company. The past few months have seen global tensions flare unlike any time in recent memory.

This latest succession of crises has, in fact, begun to stretch our use of descriptive narratives and metaphors. We are literally running out of analogies to explain what is happening around us. Does the Russia/Ukraine conflict mark the return to the Cold War? Not really. The situation is unquestionably dire, but calling it the Cold War doesn’t help us grasp what’s going on. The world has moved on, the global landscape has evolved.

To be sure, looking for historical touch points is useful when trying to explain international political behaviour. That said, the 21st century seems to be pushing history into the distance at an alarmingly rapid pace. So we need to look forward, as well as back, to make sense of events.

In the interest of looking forward – and in the interest of efficiency – the following areas of international risk loom largest for the immediate future. They defy easy categorisation. If you’re looking for a helpful metaphor, look to geology. Many of the political and security risks we will face in the future are the consequences – the tremors, if you will – of tectonic shifts in how the world fits together. The fault lines are everywhere. Below, a brief tour of the biggest.

1. Geopolitical instability

Companies care less and less about borders. Countries care more and more. The result is a level of geopolitical instability hitting hard at how companies and countries interact. One of the most vivid examples of increasing geopolitical risk is China’s recent aggression in its maritime sphere of influence: perceived hostility toward Vietnamese energy interests in the South China Sea provoked an outburst of violence against Chinese companies in Vietnam. On the other side of the globe, US and EU sanctions against Russia are punishment for one country’s violation of another’s borders. A feverish business lobby prevented the deployment of the most trenchant sanctions, but in the end, politics trumped commerce.

2. Hacking

The ongoing digitisation of information makes cyber threats one of the most prominent new risks to business. The cyber threat comes in three equally pernicious forms. Firstly, attacks designed to access valuable or confidential information. Here, think about the invasion of customer databases for credit card information. Secondly, the ideologically or politically motivated attacks against a company’s reputation or its ability to provide services. Finally, electronic penetration by foreign or other agents for the purpose of commercial espionage.

3. Changes in the way we use energy

The emergence of alternative sources of oil and gas is redrawing the world’s energy map. Soon, shale will make the United States the world’s largest energy exporter. The US’s resurgent position threatens – threatens – to upend political and economic relationships that have been stable for decades. US-Saudi relations, for example, are a pillar of the current order in the Middle East. If that pillar cracks, as some fear, what happens to the balance of power around the Gulf? This is a perfect example not just of the proliferation of risk, but also of its complexity.

4. Rebellion

The widespread lack of public support for military force has increased the likelihood of prolonged economic combat. And it’s not just Russia. Sanctions are equally prominent as a weapon against Iran, where neither the United States nor Israel is prepared to neutralise an emerging nuclear capability by force. Interestingly, removing the sanctions promises to unleash its own chain reaction: a rush of foreign investors into a massive, untapped market. Look what happened in Myanmar, and multiply. That sort of economic stampede itself has its own implications for regional stability.

5. Extremism

The eruption of violence in Syria has created a training and distribution centre for the spread of Islamist extremism. If you are inclined to think that you or your company are exempt from this particular risk, just ask the people queuing at security check-points for flights to the United States. Or ask the companies operating in and around the oil fields of southern Iraq, below the area recently seized by ISIS, the Islamic State of Iraq and Syria. See how investors in Lagos feel as Boko Haram eyes a move from its traditional base in northern Nigeria. Or ask the key players in the Kenyan tourist sector, who are seeing their economy laid low by Al Shabaab.

6. Corruption laws

You’re already worried about international corruption prosecutions. Now worry about local corruption laws. Local laws can be much more difficult to understand than international laws, and their prosecution can be much more difficult to predict. In Russia, domestic corruption investigations are used as tools for political punishment. In China, they are aimed at cracking down on local excess. Both ensnare foreign companies. The areas of focus remain familiar – know your distributors, agents and other third parties. Worry about corrupt public officials, but don’t take your eye off B2B corruption.

7. Social unrest

As authoritarian regimes use hostile methods to quell social unrest, they almost guarantee its eventual return. Turkey’s Recep Tayyip Erdogan has cracked down on his own people on several occasions in his most recent term. His methods have ranged from analogue (water cannons in Gezi Park) to digital (the squelching of Twitter during a corruption investigation). In the end, it all looks heavy-handed, much like his reaction to a recent mining disaster. Venezuela’s Nicolas Maduro and Egypt’s Abdel Fattah el-Sisi are equally potent examples of rulers who have imposed a messy and sometimes lethal brand of order on their compatriots. The result? A public pressure-cooker.

8. The end of growth in emerging markets

Slowing emerging market growth threatens the orgy of consumerism keeping the new middle class happy. And once the shopping stops, how happy are we? The past 10 years has seen the development of a new, global middle class that has been content to keep incumbents in office as long as the good times roll. Now that slowdowns loom – particularly in emerging markets – incumbents are under pressure to justify their existence. Look either for transitions in some emerging markets (Indonesia, for example) and or for general restlessness (see Turkey, above) in others.

9. A power vacuum

If the US doesn’t want to be the world’s sheriff and no one else fancies the job, who’s in control? The United States has retreated from the Middle East, Afghanistan and Iraq, and US public sentiment is strongly against significant foreign interventions elsewhere. So who’s up for the job? The United Nations Security Council is hobbled by its members’ right to veto. China appears reluctant, as well as currently unable, to replace the US as the world’s chief cop. (Perhaps that’s a good thing.) The European Union’s consensus-driven model almost disqualifies it as an efficient global crisis manager. We are accustomed now to talking about a multi-polar world. At its core is a power vacuum.

10. The youth boom

Finally, you’re not getting any younger, but everybody else is. The global explosion of the youth population presents risks and opportunities. Countries with growing youth populations have a source of labour, consumption, ideas and investment. But any lapse in a country’s ability to keep its youth educated, employed, healthy and housed will lead to a challenge to the status quo. Africa is an excellent example of an entire continent undergoing a youth boom. It is also home to the majority of the world’s least competitive economies. Growth rates in Africa have been impressive lately. They will have to stay that way to absorb the continent’s bumper crop of youth.

- Charles Hecker is the global research director of Control Risks

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