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Managing Country Risk for CEO

Groups of risks, country risk, risk mitigation.

Your organization has just officially started a new business operations in a foreign country X. Being a high potential manager, you have been identified by the management to head that international office as the first Country Head, the position perceived as equivalent to Chief Executive Officer (CEO) at the Headquarters.

One of your main immediate concerns is how to deal effectively and manage the various risk potentials in a foreign country.

What is Country Risk?

Country Risk is the kind of risk originating as a result of doing business in a foreign land. For purpose of discussion, the country risk is categorized into six (6) groups: Personal; Security; Natural Disaster; Political; Operational; and Safety, Health & Environment (SHE). As the Country Head, you need to identify, separate and thus manage & mitigate the various risk events resulting or transpiring from each of the group. This is summarized in the table, as shown.

GROUP
A.Personal
B.Security
C.Natural disaster
D.Political
E.Operational
F.Safety, Health & Environment

IDENTIFY
To list down all the possible risk events under each group.

SEPARATE
To classify each risk event into Low, Moderate or High ratings.

MANAGE & MITIGATE
To concentrate on those risk events with the Moderate and High ratings.

This paper tries to provide a practical approach or guide on how to go about managing the risks and subsequently managing your business on a day-to-day basis.

Identification and separation of risk events

Probable risk events for each group include but not limited to following, taking note that one country is different from the other.

For illustration purpose, each risk event is hypothetically classified into three (3) ratings: Low (L); Moderate (M); and High (H).

A. Personal
A(i) residence (L)
A(ii) transportation (L)
A(iii) death threat (L)
A(iv) traffic accident (M)

B. Security
B(i) kidnapping for ransom / hostage (M)
B(ii) terrorist attack / sabotage / bomb threat (M)
B(iii) theft / burglary / crime (L)
B(iv) industrial espionage (M)
B(v) war (L)
B(vi) civil unrest / strife (M)
B(vii) sectarian violence (L)

C. Natural disaster
C(i) flood (L)
C(ii) major earthquake (H)
C(iii) sandstorm (L)

D. Political
D(i) change of power / political crisis (L)
D(ii) tension in neighbouring countries (H)
D(iii) sanction (L)
D(iv) nationalization (L)
D(v) deportation / capital punishment (L)

E. Operational
E(i) communication disruption (L)
E(ii) unavailability of essential services (L)
E(iii) information leakage (L)
E(iv) breakdown of office equipment / utilities (L)
E(v) fraud (L)
E(vi) forced closure of office (L)
E(vii) strike (L)
E(viii) sabotage (L)
E(ix) corruption (L)
E(x) foreign exchange / currency restriction (L)
E(xi) legal compliance (L)

F. Safety, Health & Environment
F(i) fire (M)
F(ii) disease / epidemic outbreak (L)
F(iii) death of staff (L)

Total number of risk events in the above examples is 33 of which 25 are classified as Low (L), 6 as Moderate (M) and 2 as High (H).

Managing and mitigating the risk events

For practical purposes, we should be concentrating on managing the risk events that are rated as Moderate (M) and High (H) only – in this case, the total number is 8. To avoid these potential risk events from turning into a crisis and thus affecting the business scenario of your organization, you need to work out some forms of mitigation.

Below are some of the possible measures of mitigation for each risk event classified in the Moderate (M) and High (H) ratings (eight in total):

.Major earthquake – avoid renting high-rise building for the office as well as for the staff accommodation, work together with host country’s relevant department to develop earthquake emergency procedure and provide regular awareness training to the staff.

.Tension in neighbouring countries – comply with local acceptable standard, stay neutral, establish good networking with locals and liaise constantly with your country’s embassy and headquarters. Partial or full evacuation may be possible if local situation worsens.

.Traffic accident – establish policy that staff are not allowed to drive while they are stationed overseas. If they must travel, rent a car with a local driver.

.Kidnapping for ransom / hostage – develop a practical journey management for staff, learn to break from routine, move in groups, be a good corporate citizen, maintain a good networking with community / local authorities and maintain a low profile.

.Terrorist attack / sabotage / bomb threat – be apolitical organization, maintain low profile and practice transparent and arms length transaction.

.Industrial espionage – do not let local recruits to prepare / handle reports and key documents, classify all documents, hand-carry sensitive documents / information and hold strategic meetings outside the office.

.Civil unrest / strife – work closely with Headquarter’s security, include force majeure clause in major contracts and register & communicate with your embassy on regular basis. During actual disturbance, limit movements or stay indoors and monitor local news.

.Fire – install smoke detectors and fire extinguishers in the office and develop an “emergency response plan”.

In summary, country risk is one of the components of the bigger scope called Risk Management. To manage and mitigate the country’s risk events effectively, the Country Head needs to work very closely with his counterparts at the Headquarters.

The writer can be contacted at kamarha@gmail.com
Published: 2008-12-21
Author: Kamaruddin Hassan

About the author or the publisher
1. Working as a Manager in an oil & gas company in Malaysia for the past twenty six (26) years.
2. Graduated with Diploma in Industrial Chemistry (Malaysia) in 1976; and a BS in Liberal Studies (from USA)in 1981.

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