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