Whether it’s a natural disaster, a transportation issue or a supplier failure, it’s crucial for businesses to have a robust plan to protect against unexpected circumstances that could lead to business disruptions and create financial risk.
There are a variety of steps a business can take to help safeguard revenue and plan for continuous operations in the face of disruption. For savvy players, it’s important to understand and map out the unique supply chain – from components to raw materials – for each stage of operation and to understand suppliers and dependencies.
Although global expansion can create substantial economic opportunity, it’s not without its risks. Companies that operate globally must have backup plans and inventory in case there is an interruption.
Knowing your operation, processes and having a contingency plan are critical. All too often, companies have a piecemeal perspective of their risk as opposed to understanding the complex interplay between the operations and the balance sheet.
Protect Against Supply Chain Instability
El documento global supply chain continues to face instability, which places additional risk on businesses operating on an international scale.
During COVID, vulnerabilities within ‘just-in-time’ manufacturing came to light, highlighting society’s dependence on reliable – yet expensive – air, land, sea and freight shipping. Long supply chains that require the movement of materials and components across the globe leave companies vulnerable, especially because trade restrictions can fluctuate.
Russia’s invasion of Ukraine is an example of this. At first, European auto manufacturers virtually shut down because many of the wire harnessing systems for European-manufactured cars were made in Ukraine. As a single good, it’s not a high value-added product, but without access to wire harnessing systems, many European manufacturing plants came to a halt.
As a result, companies today are tasked with shortening extended supply chains to reduce vulnerabilities. A way to do that is to find clusters of countries where low-cost manufacturing can happen within a tighter radius.
The process can be challenging because as this shift is happening, countries are scrambling to bring ecosystems together. The growing demand in Vietnam, Indonesia, the Philippines, Cambodia, Mexico and Canada is one to note.
Create Multinational Resilience
Dwight D Eisenhower said it best, “Plans are worthless, but planning is everything.” For a company with a multi-country supply chain, it’s the thorough understanding of your processes and dependencies – and having backup plans along the way – that could help reduce risk.
Here are key considerations to defend against business interruption:
- Political risks: No one could have predicted many of the world events that have happened in the last 24 months. Performing desktop exercises for worst-case scenarios is a prudent part of an operator's playbook. If a business is considering expanding into a politically turbulent region, it is encouraged to research the business approach, dealings, opportunities and challenges of companies already operating in that particular region.
- Cyber risks: Companies can and should work with internal IT teams and third-party resources to have an incident response plan in place for the possibility of a cyberattack. Given the continued risk of cyber threats, the protocol around cyber protection should be explicit and in the hands of people who are collecting information and manipulating data for the company.
- Regulatory risks: A global operator needs to follow the laws of every country it operates in – a formidable task for any organization. Three parties are required to put together an effective multinational insurance program: an experienced broker, a trusted advisor and a global insurer.
- Financial and tax risks: For operators to understand their financial risk, they must know the values of their properties, including buildings as well as replacement costs. Global businesses operating in different countries must also map out country-specific tax requirements and environmental regulations. Understanding the rules, the norms and the practice in an individual country is critical.
Ensure There Is Adequate Coverage
Companies go through extraordinary efforts to expand globally, yet all too often they fall short on insurance. The same rigor with which leadership runs a business should be applied to understanding your insurance program – and how it interplays across various countries and geographies.
To that end, companies should be wary of buying insurance in individual countries. Global operations can benefit from an insurer who can take a comprehensive view of your business. A carrier must be able to offer a program structure that adequately addresses and responds to the active dynamic of your operations and the people and products in motion around the world. It is important to be certain that the insurance program can respond to a loss in the country where it occurs – and in any other country that then experiences a negative financial impact because of that loss occurrence.
To do this, underwriters need to see a detailed plan that breaks down all the activities of each operation, from sourcing to packaging and distribution. This level of detail allows the insurer to perform an accurate forensic review of the operations and determine the potential extent of the loss as well as the payments that are necessary at each step of the process to make the company operational as quickly as possible following a loss event.
For more insight on the latest industry trends, read our 2024 Risk Monitor Report.
La información proporcionada en estos materiales brinda información general y de asesoría. It shall not be considered legal advice. The Hartford does not warrant that the implementation of any view or recommendation contained herein will: (i) result in the elimination of any unsafe conditions at your business locations or with respect to your business operations; or (ii) be an appropriate legal or business practice. The Hartford assumes no responsibility for the control or correction of hazards or legal compliance with respect to your business practices, and the views and recommendations contained herein shall not constitute our undertaking, on your behalf or for the benefit of others, to determine or warrant that your business premises, locations or operations are safe or healthful, or are in compliance with any law, rule or regulation. Readers seeking to resolve specific safety, legal or business issues or concerns related to the information provided in these materials should consult their safety consultant, attorney or business advisors. All information and representations contained herein are as of June 2024.
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