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Global Risk / Global Opportunity

Ten Essential Tools for Tracking Minds, Markets & Money


Shlomo Maital and D.V.R. Seshadri

RISK

OPPORTUNITY

To ignore political risk is dangerous. To avoid it is shortsighted. To use it can be very profitable.
-- Ian Bremmer

Chapter Nine Non-economic Risks


This chapter shows how there are many non-economic risks that a manager should simultaneously monitor, and either proactively make moves that mitigate their impact, or capitalize on the opportunities that they create. It presents three of the many important risks that managers must be aware of: Political risks, risks stemming from terrorism, and environment-related risks. Case studies of how great companies assessed and benefited from these risks are given.
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What other types of risks should managers track on their radar screens, besides financial risks inherent in money markets, which are of course the primary thrust of our book? Are there some generic tools that can be deployed to

understand these non-economic risks?


Are each of these non-economic risks independent of each other, or do they operate in tandem? What are the consequences of not managing these risks? Are there opportunities embedded in these risks that can be leveraged?
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Political Risks
Risks in the political environment that may adversely impact business operations. Caused by change of government, violent conflicts, sanctions, unfamiliar governmental systems etc. Managing Political Risks: - helps businesses prepare for possible fall-outs of political risks - monitoring political risks helps track political developments that portend boom times Shock and Stability are two components of political risks.

Examples of Companies Impacted by Political Risks


Political unrest ousts Tata Nano from West Bengal

Change in the state government derails Enrons Power Project in India Indias LCA Project, a victim of sanctions LN Mittal monitored political risks in target countries and emerged as the Steel Emperor

Definition:
Political Risk may be defined as the assessment of the impact that the political environment, events or decisions in a country or, indeed,

a region, may have on the operation of a business, with the


consequence that investors may lose their money or that the investment may not reach expectations.

Types of political risk: * Change of government * Violent conflicts * Sanctions * Political Risks to Trade
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Case Study: Tata Motors - Political Unrest Ousts Tata Nano from West Bengal

* May 2006: Tata Motors announces that a new factory will be built in Singur, West Bengal (one of Indias poorest states), to build the Nano car.

* Dec. 2006: large-scale protests by farmers and others, which continue through 2007.
* Political upheavals, heavy monsoon rains force Tata to postpone launch of the Nano car to Sept. 2008. * October 2008: Tata announces relocation of its plant to Gujarat, a state in Western India known to be friendly to industry. The Gujarat state government offers attractive incentives. * March 23, 2009: commercial launch of the Nano car. * 2010: the new plant in Sanand, Gujarat, opens, with an annual capacity of 350,000 cars.
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Risks Of Terrorism
Acts of terrorism can impact a firms business continuity, performance, and the way the business is run.
Best Practice Counter Terrorism Management to mitigate risks of terrorism. Terrorism presents new opportunities for some companies.

Terrorism
Case studies: * Mumbai, India: Nov. 26, 2008

* 9/11 Attack on the United States

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Case Study: India Premier League IPL moves its second season, in the spring of 2009, to South Africa, owing to security concerns. The attack in Lahore, Pakistan, on the Sri Lankan cricket team heightened concern. South Africas economy gains an estimated $2 b. from 59 matches. Indias Board of Control for Cricket lost heavily.

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Toolbox: Tool #9 BPCTM Best Practice Counter Terrorism Management * Secure critical infrastructure by creating formidable barriers around it * Buttress infrastructure through systems and processes (e.g. tight entry protocols for personnel).

Case study: Opportunities seized, as U.S. Homeland Security and Defense budgets provide a large new market

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Environmental Risks
Environmental violations by businesses is a grave issue in the light of global warming and general rise in societal awareness. Businesses must go beyond pollution control and ensure pollution prevention. Develop environmental strategy that focuses on pollution prevention, product stewardship and clean technologies.

Benefits of adopting strategies that promote sustainability : - Meeting market expectation - Leveraging competitive advantage - Improving market access - Enhancing brand image - Increasing cost savings - Increasing shareholder value

Environmental Risk

Case study: KIOCL - Kundremukh Iron Ore Company Ltd ignore environmental damage at your peril! 1915: iron ore deposits discovered in Kundremukh, Western India 1967: National Mineral Development Corp. does survey 1974: mine infrastructure established 1976: KIOCL becomes Asias largest mining and pelletization complex 1983: Karnataka Govt. declares Kundremukh a National Park, including KIOCLs mining concession 1995: environment protection organizations file a Supreme Court petition against KIOCL Dec. 31 2005 Supreme Court declares KIOCL mining must be stopped by this date
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Case study: SUZLON ENERGY LTD Harnessing the wind * Established in 1995, now 5th largest wind turbine manufacturer in the world, annual revenues $850 m. * Founder Tulsi Tanti, former textile manufacturer sees decline of the industry, begins to generate its own electricity with windmills. * Tanti and his brothers launch Suzlon Energy Ltd. Green business is good business and it is not just about making money. It is about being responsible. Clean and green power is the best option.

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Best Practice in Non-Economic Risk Management


Case study: Risk Management at Infosys * Risks are listed in six broad categories: - strategy - industry - counterparty - resources - operations - regulations and compliance

* Risk Management Practices - risk assessment - risk measurement & monitoring - risk reporting - integration with strategy and business planning
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