For years, companies have steadily increased their presence overseas, whether they choose to outsource their manufacturing, break into foreign consumer markets or work with suppliers based abroad. While this practice has become common, it is not without risk, making it essential for businesses to not only understand the challenges of having overseas operations and contracts, but have coverage that protects them from unexpected circumstances.
"Doing global business has been on the rise for a number of years," said Sam Valeo, senior vice president of HUB International Midwest. "Everybody is trying to do something globally. And the current environment is one where we expect this trend to increase."
Risks to consider
Doing business overseas can be a profitable endeavor, but there are numerous risks and considerations for a corporation to understand before making a move across the world. Failing to address these risks and obtain protection could cost a business substantially and has the potential to damage its financial position domestically and internationally.
Regulatory requirements
Comprehending and abiding by different regulations in various countries can be a difficult task, especially if a business chooses to operate in dozens of locations. Insurance regulations, in particular, can be easily overlooked. However, following local rules is absolutely essential for companies looking to ensure their expansion plans don't turn into a disaster. Failure to comply could suspend your operations and/or result in fines and citations.
According to Valeo, your insurance broker should perform the following on your behalf:
- Provide you with the insurance regulations for each country you do business in.
- Access local insurance expertise on your behalf in the event of a claim or to place local coverage on your behalf.
- Supplement your local coverage with a Difference in Conditions (DIC) policy that essentially fills in the gaps and brings all of the local policies up to the same level of coverage and limits.
Political environment
A nation's stability and government represent another risk concern for businesses looking to expand their operations overseas. Companies should consider the effects that can be had on supply chains, employee safety, production processes or even consumer purchasing in the event of a coup, transition of power or war. Some countries can seize business assets under certain circumstances, making it important for an expanding firm to be acquainted with the political environment in all countries they operate within.
Political risk insurance is designed to help manage the financial implications that could negatively impact your business. Coverage is also available to protect your employees when working in foreign countries.
Overseas supply chains
Even if a business doesn't directly operate in another nation, it likely relies on firms in other countries through its supply chain. Business owners should be aware of the potential risks facing their supply chains, including natural disasters, terrorist attacks, product shortages and wars. An event such as a tsunami in Asia can delay material shipments and throw off production cycles, forcing companies to deal with product shortages and lost profits.
You should conduct a supply chain analysis to determine your level of risk. Don't overlook your supplier's supplier as well. If your vendors are all relying on the same supplier, your business could be at risk in the event of a supply chain interruption.
Local standards
According to Valeo, understanding local culture and living standards is important to successfully entering a new region. Businesses can sometimes fail to completely understand local union or pension requirements and how these regulations impact their firm. A HUB consultant can help provide critical information on local benefit or salary packages.
Dealing with overseas risk
No business can afford to undertake international expansion plans, only to discover it has not taken the necessary business risk management steps to effectively mitigate potential problems.
Getting coverage for the risks associated with entering international markets is absolutely essential, and can prove to be a financially savvy move if a business finds itself inadvertently violating a country's business requirements or breaking any laws. Coverage options may seem overwhelming, but your HUB consultant can help you determine which policies are necessary for your firm and will limit expansion risks. You should expect your broker to manage all of the moving parts for you as well as help communicate the program specifics to your staff.
It's essential to get started as early as possible to fully understand the risks and how they relate to your business needs and capabilities.
"If a company is considering expansion, one of the things they want to consider at the beginning of the process is how they're going to manage the risk of being in another country," said Valeo. "Risk advising really comes into play early in the game."