Managing enterprise risk when exploring Asian opportunities

Australian businesses with international operations or supply chains may unnecessarily be risking disruption, with consequent loss of revenue and customer confidence.

This situation arises when a business fails to adequately protect itself against events that may stop or compromise its operations. Understanding the environment in each country in which the business has a current or proposed presence is critical to operational resilience and effective risk management.

At FM Global, we have developed the FM Global Resilience Index to help Australian (and international) C-level executives and relevant managers undertake this task. The Index enables business leaders to decide where to site new facilities or expand existing ones; select or assess suppliers; evaluate established supply chains and identify vulnerable customers.

The Index rates 130 countries on its economic factors (including productivity, political risk, oil intensity (a measure of vulnerability to oil price and supply changes) and urbanisation rate); risk quality factors (including exposure to natural hazards; natural hazard risk management quality; fire risk management quality and inherent cyber risk); and supply chain factors (such as corruption control, infrastructure quality, quality of local suppliers and supply chain visibility across a country).

Managing risk in Asia

For many Australian businesses, Asia represents a considerable opportunity to control input costs and access potentially lucrative markets. According to the Department of Foreign Affairs and Trade, Australian investment in major Asian economies (including China, India, Hong Kong, Japan, the Republic of Korea, Taiwan and ASEAN members) has grown from $A98 billion in 2006 to $A381 billion in 2016.

However, executives and managers need to fully understand the risks as well as the rewards of locating operations or increasing supply chain exposure in Asian (and other) countries. For example, the Index reveals many Asian countries are susceptible to natural hazards with consequent potential risk to business operations. Countries with significant flood exposure and high urbanisation rates expose many major global manufacturing hubs including Bangladesh (ranked 125), Thailand (ranked 124), Vietnam (ranked 117), China (ranked 118) and India (ranked 106). The potential for severe disruption across business operations and global supply chains from natural hazards like flooding is considerable. 

Asian countries by overall rank – FM Global 2018 Resilience Index

The Index includes detailed measurements and rankings of all Asian countries against economic, supply chain and risk quality factors.

Australia a stable environment

Australia represents a desirable destination for businesses seeking a comparatively stable, low-risk environment. The country ranks 17^th in the 2018 Index due largely to an improvement in overall political risk, moving up from 23 to 17, as well as good natural hazard risk quality (ranked 15), driven by the quality and enforcement of its building codes in respect to natural hazards like floods and windstorms. Australia’s strong supply chain visibility (ranked 21) is also notable, as is the country’s control of corruption (ranked 14) and supplier quality (ranked 24), which ensures its overall resilience remains high.

However, Australia placed far behind Switzerland and Luxembourg, ranked number one and two respectively in the Index. Switzerland’s top spot is attributable to the quality of its infrastructure and local suppliers (ranked 1st for both drivers), its low political risk, high control of corruption and economic productivity, while Luxembourg ranked second, held back by inherent cyber risk and vulnerability to an oil shock.

Businesses considering operating in Haiti¾ranked 130 with a score of zero¾may choose to reconsider their decision or apply extensive additional protections to minimise risks such as high natural hazard exposures, low local standards and corruption.

FM Global welcomes any feedback or input you may have to the 2018 Resilience Index and hope it supports your efforts to minimise risk to your business.