As emerging markets have taken center stage in the global economy, so too have the associated risks. Brazil, Russia, India and China (BRIC) as well as Africa are seeing more growth while the US economy is lagging behind these emerging economies. Therefore, investors are eager to finance mega deals in these countries, assuming that the due diligence has been completed. This is not always the case.
In an increasingly intertwined business world with far-flung supply chains stretching across myriad time zones and cultures, a comprehensive business continuity plan can help a company battle devastating hurricanes that can knock out contact centers, derail assembly lines and close down key distribution centers. Business continuity planning is a subset of the processes that are required to be in place for "global best practices" for companies with operations in multiple continents. In the US, such companies are often Fortune 500 companies, in India they are referred to as multinational corporations (MNCs) or globally as enterprises (typically with $1 billion or more in revenues).
Investors have generally been cognizant of the higher risks due to various types of volatility, e.g., violence, terrorism, natural disasters, religious and communal and unrest, infrastructure failure, communications and utility interruptions, strikes or “bandhs” in India, etc. However, they are not fully aware what steps have been taken to plan and manage for such incidents. Investors and parent companies investing in emerging markets oftentimes assume that such plans are in place and fully tested.
Many of these kinds of problems rarely occur in the US, but many are commonplace in emerging markets. As a result, American companies setting up plants in China and Southeast Asia, for example, or American companies setting up offshore delivery centers in India have to be cognizant of the problems and be able to develop contingency and resiliency plans for these operations.
Leaving it to the overseas companies or contractors to plan and manage these critical processes rarely works since most offshore delivery centers are run by executives who have never left their homelands. This is also the case of the proverb “leaving the fox to guard the chicken coop.”
Operational risks may take forms that are uncommon in the West; in India for example, one company that wanted to build a manufacturing facility found that it had to contribute to site planning and road building because of the slow pace of infrastructure development. There are numerous horror stories from other organizations as well.
The recent attacks in Mumbai by a handful of terrorists kept the sprawling city of Mumbai under siege for almost 10 days, paralyzing life and business as usual. Companies planning offshore delivery centers in Mumbai or other Indian cities have an imperative need to review all aspects of their operations from human resources, information technology, infrastructure, logistics, manufacturing and supply chain management, etc. as well the most crucial aspects of their operations, to ensure that they have the foolproof plans and resources to recover from unforeseen catastrophes and disasters.
Examples of companies that are outsourcing their processes include global enterprises that are setting up offshore development centers and business process outsourcing centers (BPOs which include call centers, legal outsourcing and even outsourcing of accounting functions), as well as pharmaceutical companies that are outsourcing their clinical trials and manufacturing of generic pharmaceuticals in Brazil, India and China for example. In such cases, entire plants and offshore centers are subject to disruptions, in which case the parent company is likely to be saddled with costs due to interruptions and disruption of critical aspects of the supply chain.
While the global downturn may prompt some companies to avoid spending money to on disaster planning, that is just when they need those plans the most. It’s much easier to plan for a disaster incident than to try explaining why you didn’t.
Most companies try to operate on lean budgets today. Many companies have supply chain risks because they rely on single distribution center. During the recent economic crisis, many companies have looked everywhere to reduce their costs. Doing so, has increased risk.
Companies should be paying more attention to business continuity than they are. As companies continue to cut costs, they often introduce new risks into their business operations. Business continuity planning is a key part of maintaining a company’s resiliency … so it can keep sourcing and producing products and profits. And if you can’t deliver your products, shareholders may be concerned that company earnings could go down as a result.