As human beings have developed self-defence mechanisms that help them make safe choices, businesses must also protect themselves during expected (and not so expected) times of political challenges. To ensure successful operation overseas, business managers should take time to understand potential and plan for risks.

What exactly is a political risk for business?

International political risks for businesses are first and foremost economic threats caused by events like terrorism, war, sanctions, and other disagreements between heads of two or more states.

In other words, it is a risk of losing money due to unstable governments, economies or threatened nations.

This concept looks covers a broad spectrum of diverse problems. Some of the risks that international politics poses to businesses are ongoing, others only happen under the pressure of certain events and occur on an occasional basis.

Whatever the situation is, almost all political events entail two major consequences for international business players. These consequences are currency fluctuations and tightened/weakened international trade laws.

How to identify potential political risks

Identification is the first step to successfully managing consequences of any political climate change.

The easiest thing you can do as a business owner is to get a set of easy and helpful habits.

Read the news! Despite the biased and conflict-oriented nature of modern media, it is still a valuable source of information that can help you determine potential risks for your business. In a situation of a worrisome event or political conflict occurring in the zone of your business operation, you will be able to start taking preventive measures before it escalates.

Analyze carefully! Not all political events are potentially harmful to your business. The truth is, not even 50% of them are. Some events would have a serious social effect but only a few minor business implications. In order to filter out the meaningful events – from the perspective of your business – determine actors and conditions that could affect your priority goals. Create an inventory of a wide range of political risk types. From capital controls to increased taxation, labor strikes and protests, which could impact your company.

Political risks can be divided into macro and micro risks. While micro risks impact certain industries and are relatively easy to prepare for, macro risks can become a real trouble for an international business. At the same time, they normally result from series of political events and can be detected in advance. Macro risks include events such as a civil war or a major international confrontation between two or more governments. These typically exist where a country is forced to close borders or run into a huge devaluation of its currency.

Work with numbers and stats! In order to categorize an event as a risk, measure the vulnerability of your assets against it. The more assets you will find to be vulnerable under a certain political threat, the more invested and prepared you should be to balance out its negative consequences or to completely pull your investment out of the politically unstable area.

How to mitigate political risks in business?

There is no universal solution to situations when political risks start interfering with your business plans. Risk management in general is a very sensitive and complex concept that requires a unique approach in every single case. However, there exist principle rules of action for those involved in international business.

Following these rules helps mitigate political risks of almost any nature.

1. Insure your business.

Political risk insurance protects investors, financial institutions and international companies in case of events promoting financial loss. Such as acts of expropriation, domestic or international political unrest and violence (including war and terrorism), capital repatriation, and sovereign debt default.

Insurance as a tool of political risk mitigation is particularly important for those businesses that operate within developing economies. Although these areas offer a lot of opportunities for business growth, they are more susceptible to political turbulence.

As a business or a supply chain manager, you might have a long-term agenda which takes years to be realized within a certain foreign market. With fully customized insurance that covers your interests on chosen territories for a defined period of time, you can enter new markets with much more confidence. The cost of this method of political risk management is totally worth it.

2. Have a plan B for your supply chain.

Any business operating in foreign markets should protect their supply chain and logistics operations from political risk. Political events often affect operations performed by your business suppliers. Such interruptions include increased tariffs, trade bans, and delays in delivery. In order to protect your business from these types of unforeseen disruptions always have a plan B – have a list of backup suppliers located in other regions. By building relationships with multiple vendors of the same product, you ensure your companies stability in terms of production schedule and budget.

3. Practice politically savvy banking.

An important method of mitigating political risk and avoiding financial loss is politically savvy banking. In the recent years, the world has been nervously observing how the U.S. dollar is becoming more and more reactive to international political events. As the global reserve currency is becoming slightly more unstable, it could be time for international businesses to update their strategies in moving funds around the globe.

One option is to keep money in a bank with branches in the region where you conduct foreign business operations. Another option is an institution that is partnered with a local commercial bank. In many cases, financial operations conducted within one banking system allow better conversion and transfer rates.

Alternatively, while choosing the right regional bank, go for the one that can manage ForEx trading and conversions for you. Finding the right way of moving your money is an important task that requires some thorough research. Your findings may contradict your routine banking strategies, but they could also save you from a huge loss during a time of political crisis.

In order to successfully mitigate a certain political risk, your methods must be tailored to the nature of your business, the nature of the risk, and specifics of your market.

Hence, the last rule:

4. Get advice from locals

Never limit your perspective by avoiding consultation with those players that have experience and knowledge within the region.

Ask questions and learn what works and what doesn’t in a given area. Here we are talking about other businesses and professional trade organizations that spend a huge amount of time and money on research. Before taking radical measures, consider working with institutions like The Finance, Credit & International Business Association, Globe Risk International, Multilateral Investment Guarantee Agency, and Export Development Canada.

An ongoing war in Syria, uncertain Brexit situation, conflicts in the Middle East, rapid Chinese economic development, a growing trend towards economic nationalism – these and many other events promote political uncertainty and instability and they cannot be neglected if you are engaged in international business. Monitoring these events and planning ahead is the best thing you can do to mitigate the political risks of conducting business abroad.

Irresponsible users, the Internet of things, “Bring Your Own Device” policies and the cloud – these commonplace aspects of online business routines are venues for cyber security threats. Implementation of new technologies that are meant to increase business productivity and efficiency also put companies at a greater risk of cyber attacks.

Statistics show that 64% of companies have experienced web-based attacks in the last year, including phishing and social engineering attacks (62% of respondents), malicious code and botnets (52% of respondents) and denial of service attacks (51% of respondents). It doesn’t matter how small or big a company is – it can be significantly compromised at any moment as long as it is connected to the World Wide Web. Enough to make anyone nervous, right?

During recovery from a cyber attack, a company will lose financial benefits carried out by customers, employees, business partners and its corporate image.

The average cost of a data breach in Canada is $6.03M. 

Of course, costs and outcomes will always depend on the nature of the attack and the extent of the breach, but the loss of revenue from a cyber attack will outweigh the financial investment in online security mechanisms.

1. Malware opens the gate to your company’s data

A cyber attack is a purely technological act. When you hear about a cyber interruption, the first thing that comes to mind is a computer virus. Malware installation – an online security attack conducted by viruses and worms – significantly impacts one’s ability to find a “common language” with an affected device.

The rapid development of malware is a huge concern, not only for businesses but also for producers of anti-virus solutions, as it is getting harder to keep up with. In just a few months one company might capture up to 18 million new malware samples, or up to 200,000 samples per day! It can cause system sluggishness, loss of internet connection, inability to access files, etc.

Sometimes malware is obvious – it operates overtly, constantly produces pop-up windows and gives you warnings. But malware can also sit silently on your computer, watch what you are doing, use your computer to sending out malware to other devices in your network, or sneakily download data from your network to the attacker’s home base.

Normally, malware installation is not the ultimate goal of a cyber attacker. It can be the gateway to gaining control over your whole corporate network.

Once a burglar breaks the front door of your office, he automatically gets access to all other micro offices inside; he can steal documents, damage equipment, and vandalize the property. This is exactly how malware acts after opening the “front door” of your corporate network through just one device.

So, it should absolutely raise a red flag when your computer becomes unusually slow and starts performing tasks you haven’t authorized.

2. Your corporate secrets get revealed

How many confidential files sit in one single computer at your office? These types of files are always hunted for. Data leakage is the most costly outcome of a cyber attack for an organization. Think about it in Foucauldian terms: knowledge is power. Once your knowledge in the form of important data is transferred to someone else, so is your power.

Losing dollars is nothing compared to losing exclusive knowledge about how these dollars were made. With data leakage, we are talking about revealing your formula of success constituted by micro (and often under-the-table) operations, intellectual property, special agreements, partners’ contact details, client’s confidential information and records.

3. Accounts associated with your business become vulnerable

The loss of corporate data also covers theft of information or login details for accounts associated with your business, including your customers’ accounts. Many global companies suffered from major data leaks. Equifax, a top credit-reporting company, ended up exposing personal data of over 143 million people as a result of a cyber security breach. Customer names, Social Security numbers, birthdates and addresses were stolen by hackers. They also stole credit card numbers of about 209,000 people.

Disastrous events like this can happen even when your corporate devices are not affected. In most of these cases, account details are obtained through vulnerable online platforms your company is using.

You and your clients are under a particular threat when your website enables a shopping cart functionality.

According to Rob Moerman, senior manager of the Cyber Intelligence Centre’s operations, “when a hacker finds a vulnerable website, they can expose that crack within minutes to retrieve information like usernames, passwords, and credit card information” (Canadian Business, 29 June 2016).

Alternatively, company login details can be obtained by breaching your corporate network. Broken-into accounts, online banking login details, and credit card information are used for unauthorized financial operations. This outcome of a cyber attack represents a complete loss of control of your company’s finances, as well as a direct and immediate financial cost to you and your clients.

4. Indirect financial loss

Some impacts of cybersecurity breaches are indirect but, nonetheless, quite frustrating. Loss of customers is one of them. Would you ever want to deal with a company that doesn’t take care of your money or doesn’t take your confidential information seriously? Nobody would.

Of course, cyber attacks are not something that one can fully control or prevent from happening. However, as a well-respected and trustworthy company, you should obtain at least basic online security systems, be able to reassure your audience that you are prepared for a potential risk of a cyber security attack, and guarantee a speedy recovery.

Consumers invest in reliable organizations, they will move their money away from companies with a history or perceived risk of data breaches.

Another indirect cost is associated with the redemption of your workforce, both technological and human, after a cyber attack. Information, employee productivity, and productivity of your business electronic devices all take time, effort and money to be successfully recovered.

Financial penalties comprise the third example of indirect costs. There are multiple fines that can follow a cybersecurity attack. You can be charged by organizations such as the Federal Communications Commission, Federal Trade Commission, Health and Human Services, the Payment Card Industry Data Security Standard, and other regulatory agencies for letting a security breach happen.

Finally, you should never underestimate the cost of legal cases that can potentially arise as a result of a cyber security breach.

Get some IT professionals on your side

The greatest challenge for companies’ looking to improve their cyber security is a rapid development of hacking mechanisms. The most effective solution in this situation is to have a full-time team of IT specialists who follow the news on a regular basis and learn about innovations within the field. Your IT must stay on top of their game and make sure that the company is prepared to resist cyber attacks at any point in time.

Apply the right security software

It is not enough just to be aware of new trends in cyber security. It is much more important to update and enhance anti-virus and anti-malware software. This software is a security mechanism that you put on your “office front door”; so, make sure you use a reliable “lock” which is sophisticated enough to protect your business.

Ensure everyone follows best security practices

Finally, educate your staff!

A recent data breach investigation report has shown that the majority of data leaks are a result of weak credentials.

So, secure password protocol is very important; it prevents situations when your data is protected by a “12345” type of password, or a password that your employee has been using for the past couple of months for all types of platforms he/ she is active on.

Imagine that feeling when your wallet gets stolen or your personal notebook is viewed without your permission. Invasion of privacy is always a highly unpleasant thing. Digital privacy nowadays is a real concept, more real than ever before. So, the same way we protect our wallets and notebooks, we should also take care of our network security.

Going green seems to be one of the most fashionable trends these days. It gets reflected not only in the mentality of individual consumers but also in the mentality of political, economic and financial leaders and their agendas.

In the past three to five years, the concept of sustainable and environmentally friendly “green supply chain management” (or GSCM) has experienced quite a lot of turbulence, partially because business managers never agree on its true meaning and core features.

Unfortunately, negative stereotypes existing around GSCM prevent us from recognizing a true value of “going green”. The rejection of GSCM practices often goes hand-in-hand with a well-spread myth about their negative impact on organizational performance. In addition to that, a lot of companies are not willing to spend their time and money on things like sustainability that do not produce immediate, visible and concrete results.

It’s time to challenge these and many other myths about GSCM practices. First of all, Mother Nature is begging for more environmental responsibility by threatening us with climate change and other environmental risks. Doing what we can to mitigate these risks is becoming vitally important.

Another reason for battling GSCM stereotypes is the existing empirical evidence of a positive correlation between green strategies and a corporate growth.

For example, when a company faces a decline in organizational performance, implementation of GSCM practices into its distribution activities in many cases serves as the most effective solution. So, let’s go over the most important reasons to stop being afraid of GSCM and to consider adopting it.

Gain a better marketing position

First of all, the number of corporations that would not get positive attention on the market from adopting environmentally-friendly practices is incredibly low.  This trend is explained by the human nature of a consumer.

As human beings, we all care about our own safety which starts with things like clean air, water, and soil. This gets reflected in our habit to consume responsibly and to make safe choices –  popular examples include organic coffee, paper bags, and free-range chicken eggs. Thus, the greener your supply chain management goes, the more endorsement it gets from the public, and such endorsement always leads to a better position of your business on the market.

Among the companies that get a significant competitive advantage by going green and sustainable are IKEA, Johnson and Johnson, The Hershey Company, UPS, etc.

Add profitable “green” revenue streams

It is truly baffling how many pathways for creating a surplus revenue are ignored by modern businesses. GSCM alone offers dozens of them. Let’s mention a few.

One of the most extreme investments would be developing innovative solutions to sustainability issues that prevail in your industry. At the very least, you can create a better image of your business on the market by developing such solutions. But you can also make profits from selling those to your competitors.

In fact, easy and ready-to-use tools for GSCM are always in demand, since they save companies both time and money.

Be the first one to create value for your competitors and leverage from it while conducting your primary business at the same time.

What some companies do is really amazing. For example, they come up with entirely new green-focused brands that end up bringing in millions of dollars in revenue. Such brands become responsible for supporting a ‘green’ and ‘sustainable’ image of their parent companies which might be involved in destroying the planet, polluting the air and affecting animals’ natural habitats.

However, as an honest person, I am much more attracted to an ethically conducted business. That is why I am not going to spend too much time talking about deceiving practices realized through GSCM. Instead, I will point at another method of an effective surplus revenue generation by the means of fair GSCM activities. This method lies in selling waste that your business produces. As I previously mentioned, sustainability and environmental responsibility are a huge trend at the moment. As a result, we start having more companies that produce their goods and services by utilizing recycled waste. So, you could kill two birds with one stone and help those companies to obtain raw materials, while financially benefiting from it.

Lower energy costs

Power and fuel are not endless resources. It’s not rocket science to understand that the fewer resources we have on the planet, the more costly it gets to support global supply chains. Green alternatives to mainstream power sources and fuels are, surprisingly enough, way more cost effective, if not free (e.g.: recycling your own waste, using solar energy or wind power). In fact, the ability to come up with alternatives like these is the essence of business sustainability.

Thus, going green and sustainable saves your business money; and vice versa – saving money makes your business more sustainable.

The truth of the modern economy is that we stop caring about things that keep us alive unless they contribute to the process of capital accumulation. But fortunately, many of us have come to a realization that this pattern is life-threatening. One of the advantages of GSCM practices is in its power to appeal to both environment-oriented and business-oriented managers. It can be absolutely beneficial to consider green strategies from the perspective of economic gain – a perspective that modern businesses are naturally so comfortable with.