European multinational corporation risk concerns

By Adina Moloman

Source: Strategic Risk Report (Marsh Risk Consulting UK)

This report summarizes the professional opinion of 30 leading risk management professionals in the largest multinational European corporations. Research for this report was conducted in the first trimester of 2011 (a period when unforeseen political turmoil in Middle East was the front line of every news ; environmental risk such as: Japanese earthquake and tsunami struck, 2010 ash cloud resulting from the Icelandic volcano eruption, the Australian floods ,etc where also a world concern).

European companies risk concerns were analyzed in five categories: economic, environmental, geopolitical, societal and technological.

Economic risks:

inflation, higher risk transfer costs, slow US recovery, rising energy and commodity prices, exchange rates, continuing recession, restrictive regulations, increased competition from china, protectionism, recession recovery problems.

Environmental risks:

natural disasters, extreme weather events, pollutions.

Societal risks:

civil unrest, business travel threats, demographic challenges, pandemic, migration.

Geopolitical risks:

political turmoil, war in Middle East, crime and corruption, governance failures, terrorism.

Technology risks:

data theft and leakage, malicious hacking, fraud, internet breakdown.

Even all of those risks are closely analyzed, the top ten risk perceived by the European companies before investing in a new country are: economic recession and recovery, political turmoil, climate change, data theft and leakage, regulation, security of IT systems, energy and commodity prices, crime and corruption, civil unrest, exchange rates.

When it comes to crime and corruption, this report especially mentioned the Mexico drug cartel conflict and how the European companies are sensitive to Mexico border conflicts.

Economic recession is a top priority concern when a multinational corporation is about to invest, because they are concerned about the possibility of double dip recession with huge financial consequences on their customers and suppliers.  Their biggest concern is evaluating the risk in their supply chain. The solution is diversification into emerging growth markets. US economy recovery is also a big concern of European companies.

Terrorism and pandemics where not among the top five risk.

Geopolitical risk shared first place with economic risk in multinational European companies concerns.

Societal: reputation risk is the biggest of all. So even the security issue in Mexico especially at Tijuana border has reached lower levels, risk perception is often the most important factor in determining multinational corporation priorities to invest in a country.

This should count as available information when promotions organisms from Mexico are attending international shows in search of presenting the advantages of Mexico Maquiladora Services at the border region and the benefits of doing business in Mexico.