“Its more fun to be a pirate, than to join the Navy,” – Steve Jobs
Global sourcing has developed into an intricate web of complex professional relationships that span oceans and continents alike, as companies seek to optimize their operations through outsourcing, offshoring, and cloud-based services. This increase in complexity in globalization is accompanied by a new tide of risks, greater than ever before in volume and variety.
As one example, cyber risk continues to grow, as modern day pirates are drawn to attacking companies wherever in the world they may let down their guard.
Far from seeing the glass as half empty, there is no reason for companies to turn the clock back on globalization or give up on further gains. The need of the hour, instead, is a proactive and effective risk-monitoring mechanism and strategy to manage these new levels of risk and complexity.
The unity and diversity of risks
So who’s to blame for the growing risks in globalization? The simple answer is: geography and scale. It is this unity that binds globalization risks, while the diversity of the risks comes from the distinct vulnerabilities of each location and the scale at which sourcing is performed.
A decade ago, outsourcing was largely dominated by giant nations such as China and India. Today, the globalization landscape has expanded to include over 50 countries with at least modest scale in regions such as Latin America and Eastern Europe. These offer lower costs as well as a proximity and increased time-zone overlap for developed markets in North America and Europe respectively. Important factors for such things as agile development in the software patch. This geographic sprawl is partially responsible for the higher risks.
Geographic risks encompass much more than natural disasters, regional politics, regional financial policy, local (city- or region-specific) culture, and legal risks. Despite the increase in the variety of risks even the worst of risks can be fully assessed in advance, avoiding service disruptions, financial losses and, potentially, brand dilution.
In our Neo Group model, for example, risks are monitored by continuously collecting data in real-time across 500+ parameters at the Country, City and Supplier levels and analyzed using an analytical engine to help inform critical decision-making. And the types of risk monitored must be constantly updated: last year we added cyber attacks and corresponding changes to jurisdictional cyber crime law to the parameters we watch.
We don’t advocate our model exclusively, but over the past two years clients have used it in the real world with encouraging results. In one case, this model helped pick up early warning signals on a policy decision in India – termination of the Software Technology Parks of India (STPI) scheme, which offered tax breaks. Based on the recommendations one of our clients, a leading semiconductor company proactively renegotiated a deal with a partner to locate in a Special Economic Zone (SEZ), ahead of the policy announcement. This “operational arbitrage” helped the client realize annual approximately 11% savings.
For global minded companies, the point is that the world has changed, becoming abundantly more complex, and the tools we use to manage it should therefore change too.
Firms leveraging global services can help avoid a different kind of anxiety by adapting a risk management approach and system to ensure the stability of operations and avoid significant disruptions.
It may not be as fun as being a pirate, but monitoring and managing global risks continuously is the new norm.
Atul Vashistha is Chairman and Alan Hanson is SVP of Neo Group Inc., a leading Global Advisory and Supply Analytics and Monitoring firm that provides Global Supply Risk MonitoringSM as a service for dynamically monitoring, managing and predicting country, city and supplier risks. Please visit Global Supply Risk Monitor for more details on GSRMSM.