We Must Consider: How To Deal With Political Risks.

In the past, only super large multinational corporations were concerned about political risk.

However, as more and more companies purchase and sell on a global scale, political risk has gradually become a common topic.

Today, political risk management is playing an increasingly important role on the agenda of most senior policy makers.

However, it is strange that when you talk about political risks with managers, you will find that they treat political risks completely differently from other types of risks, such as market risks.

For example, managers may risk a certain investment position or product, but they are extremely reluctant to accept a certain degree of political risk.

One of the reasons for this is that it has been difficult to quantify political risk, so it is difficult to simulate it.

However, as new technologies improve the ability of people to collect, process and analyze data in real time, this is changing rapidly.

Another explanation relates to a psychological function, which is similar to people's fear of flying.

In this case, no matter how much information is available, the possibility of fatal traffic accidents on the way to the airport is much higher than that in actual flight, but many people worry more about the latter than the former.

This is because most people are accustomed to driving, but little is known about aircraft flying.

Similarly, managers are well-trained in market dynamics, so managing market risks is more handy than dealing with the political world.

Moreover, the consequences of political risk are often more serious and significant than the consequences caused by the failure of market risk management.

Therefore, policymakers will turn to the outside world for help.

At present, hundreds of consulting firms that help companies to plan and respond to political risks in specific markets, and some companies provide monitoring and analysis of the situation, early warning and other services.

These consulting companies use complex risk simulation technology and continuous real-time information to provide advice for enterprises in or out of a particular country.

However, it is often very difficult to withdraw from the market ahead of time, and in most cases, it will cause financial disaster.

In view of this, the insurance company has launched a kind of insurance against remaining political risks.

The introduction of these types of insurance reduces or eliminates risks arising from currency non convertibility, government tearing up contracts or forced expropriation, large-scale disturbances or wars.

In fact, in some cases, worries about political risks have seriously hindered foreign direct investment and development.

As a result, the world bank has created its own political risk insurance company, introducing insurance coverage and insurance coverage similar to private insurance companies in order to encourage foreign direct investment in specific countries.

The revelation of the 911 incident is that if political turmoil is happening thousands of miles away, will it have a direct impact on the business community?

The terrorist attacks of September 11, 2001 gave us a firm answer.

New York was the first to bear the brunt, followed by Bali Island, Istanbul and Sharm El Sheikh, and commercial facilities everywhere became direct targets.

In Madrid and London, terrorists attacked the urban pport infrastructure vital to the operation of the business system.

As a result, these incidents have had a significant impact on the insurance terms.

It is not surprising that insurance companies have substantially increased premiums in order to recover losses and cope with future costs.

In New York alone, the premiums of major customers increased by an average of 73% over the second years of terrorist attacks.

At the same time, more and more enterprises fail to find the ideal insurance coverage.

Take airlines as an example. After the 911 incident, the insurance company cancelled the existing policy overnight, and the government intervened immediately.

Although many reinsurance companies have introduced the policy of limited liability, the trend of global terrorism has made many of them reconsider the withdrawal of aviation terrorist insurance, because the risks are hard to calculate.

The situation in the insurance market shows that the management of the risk of terrorist activities has become a great challenge for the business community.

With the soaring cost of insurance and responsibility, smart business strategy is undoubtedly working hard to reduce potential risks instead of spending money to fix it.

From a practical point of view, it is feasible to a certain extent.

Airlines have invested hundreds of millions of dollars in strengthening the cockpit doors and other safety measures.

At the same time, tens of thousands of companies have invested heavily in security, safety ventilation, air conditioning systems, monitors and metal detectors.

However, it is impossible to be seamless. Security advisers can only guard against previous attacks.

Although they always try their best to prepare for the rainy day, they will be slower than the actual situation.

If the protective measures can only reduce the risk of terrorist activities to such a level, can enterprises play a role in preventing the crisis? From the tactical point of view, the active participation of the business community is crucial to the collapse of the foundation of global terrorism.

For example, banks, brokerage firms and insurance companies must declare war on money laundering and terrorist financing.

It can be said that the business community is at the forefront of the battle to cut off terrorist financing.

The new demands of pparency and new security steps will undoubtedly increase the cost of financial companies.

But all stakeholders should see that these expenditures (if they are reasonable and effective in strategy) are actually investing in reducing the risk of terrorist activities, not just to comply with the rules.

The more creative way is to actively cooperate with the local community and help the community develop so as to enhance their own safety.

At a recent conference on terrorism, the chief executive of a leading global security company pointed out that expanding the scope of the community and helping the development of the community would be more effective than investing in advanced technology in protecting the critical infrastructure of the politically unstable state.

When local people have relevant interests in facilities built by foreign capital, they are more likely to remain vigilant, enabling owners of facilities to actively manage safety.

Perhaps most importantly, attacks on facilities with community interests mean attacks on the community itself, and those potential assailants can not put on their fair clothes for their actions.

There is a very convincing example here.

It happened in Venezuela, a rum maker named Ron Santa Teresa who took a very creative approach in the face of violence.

In 2003, a gang of gunmen attacked a security guard in the company.

After capturing the gang, the managers of the company gave them two choices: either to receive training courses specifically designed for them, to join the company after the end, or to go to jail.

After the initial success, the special course was officially established, providing three months of intensive training for these former gang members, including work and attitude management courses, psychological assessment and team sports activities.

The enrolment can immediately join the company or sign up for another six to eighteen months of training, including paid labor and more other courses for their future employment.

Since the launch of the course, the crime rate has dropped by 40%, and three gang gangs have collapsed.

For Ron Santa Teresa, this is a very smart investment. Compared with other measures commonly used by enterprises, it is more effective in reducing risks and enhancing safety.

The special course of Ron Santa Teresa provides an important inspiration for the enterprises that are fighting against terrorism: we should strategically change the current environment of terrorism, while fighting against the current terrorist activities.

Enterprises can make significant contributions in this regard.

When people feel that opportunities are slim, and that modernization and globalization are going to run themselves against the wall, terrorism can take advantage of it.

Although different companies, industries, and countries have different ways to help build communities and provide opportunities for economic development, it is obvious that the effect of any effective security measures can not be matched by the real opportunities for terrorists to claim the group they represent and to strip off their fair clothes.

A well managed and strong sense of social responsibility can spread the values of freedom better than aggressive troops.

The management of complex political risks will continue to occupy a great deal of time and even more for corporate decision-makers.

Although professional consultants and new tools can help them assess and manage such risks, insurance companies can also avoid possible expenses, but in the end, only smart business policies can simultaneously reduce potential risks and eliminate the source of certain risks.

This requires participation rather than withdrawal; active help in building communities, rather than shrinking behind the wall.

Many enterprises are beginning to realize that the fragile environment of our planet is actually a business opportunity. Positive environmental management can enhance the competitiveness and safety of our enterprises.

Faced with the challenges of political turmoil and global terrorism, if we can skillfully use the strength and innovation ability of enterprises, many problems that may puzzle this century may be solved.