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Risk and Reward in Global Markets

LOOK AT THE NEWSPAPER on any given day, and you’ll find no shortage of conflicts and hot spots around the world. But companies with appropriate risk-management policies can thrive even in dangerous environments. That’s the conclusion of the 2007 analysis of major risks around the world from the Overseas Security Advisory Council (OSAC).

To realize the potential rewards of doing business in danger zones, companies “need to understand risk environments and understand what the challenges are and put in measures and procedures,” says Todd Brown, executive director of OSAC.

The key is to anticipate and prevent problems, says Mark Cheviron, a co-chair of OSAC and the corporate vice president for security and services at Archer Daniels Midland Company, based in Decatur, Illinois. Companies are slowly coming to this realization, says Cheviron. “Before, a company would react to a crisis. Now it needs measures and procedures to avoid them happening.”

OSAC is a Department of State body with a federal charter to promote security cooperation between the government and American private sector interests. Every year, OSAC tallies the top threats that its 5,000 members have confronted around the world. Topping the list in 2007 were theft of trade secrets and insider threats in Asia, “home-grown” political radicalism and cyberattacks in Europe, and natural disasters in Latin America.

Not all the news is bad. Some countries have seen an improvement in stability and security, Brown says. Colombia earned “high praise” for the decline in guerrilla violence and kidnapping. In other regions, the threat profile has shifted, according to Cheviron. “In Ivory Coast, where we have a cocoa plant, the principal risk to business now comes from political violence, and not crime and corruption, which was the main problem before,” he says.

Generally, however, lower-profile risks, such as IT security breaches and intellectual property (IP) violations, can have a far greater impact than the topics that grab media attention, says Brown.

Counterfeiting and intellectual property theft are probably the principal risks facing American companies around the world. Adulterated food, fake pharmaceuticals, and knockoff automotive and aerospace products can kill or cause physical harm, as well as deprive companies of revenue and damage their reputations.

Counterfeiting continues to be a major problem in Asia, especially China. And this risk may grow as American companies rely more on locally hired executives, says Brown. Locals could have undisclosed links to competitors or could have criminal backgrounds. Due diligence and audit controls are critical in these risky environments.

“We are seeing more interest from companies in vetting employees as they hire more non-Americans, and they tie this in to their IP and brand-name protection policies,” says Brown.

Screening prospective employees can be difficult, however, particularly in developing countries that do not collect personal, legal, or corporate data adequately. European countries have strict privacy laws that limit access to public records, which can also hamper background checks. “Vetting is very, very difficult, but it is definitely something that needs to be done,” Cheviron says.