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Many companies are crossing national boundaries to exploit new opportunities and minimize any potential threats. Globalization brings both opportunities and risks to multinational enterprises (MNEs) doing business in another country, and requires the MNE to have a system in place to detect and respond to these potential threats and challenges.
A country risk assessment is an important first step for businesses considering doing business abroad. The assessment evaluates the quantitative or qualitative value of the political, economic, social, and business risks of doing business in a particular country. This information can usually be found from country rating agencies. An in-depth country risk assessment is based on those risks that are specific to the country in question, and may include risks associated with the following:
- Political landscape
- Economic environment
- Supply chain factors
- Labor regulations
- Intellectual property laws
A country risk assessment sheds light on hidden risks within a country and helps an MNE realign its business strategy based on those risks. Uncovering country-specific risks is a challenging process due to the constantly changing political environments, increased securitization of a country’s debt, increased compliance with the Foreign Corrupt Practices Act (FCPA), and a host of other factors as well. While many analysts rely solely on economic and political factors when determining risk, there are cultural and social factors within a particular country that should also be considered. The mere presence of risk should not deter an MNE from doing business abroad. Operating a business always carries some level of risk regardless of the country in which that business is located. However, identifying, evaluating and minimizing the country-specific risks is essential. If these risks are ignored, MNEs could find themselves operating in an environment of unknown and uncontrolled risks that could hinder their revenue, growth and overall success.
Therefore, the question becomes: How is your company mitigating its risk in doing business abroad? We firmly believe in evaluating and mitigating both insurable and non-insurable risk. Ultimately, an assessment will allow a company to understand potential risks of doing business in a given country.
The next step for an MNE in the risk assessment process is determining the company’s risk appetite. We’ll discuss that topic in an upcoming blog post.
Click here to request more information about The ALS Group or completing a country risk assessment.