If you’re a small business in Langley, B.C., manufacturing, selling and installing valves for water and sewage systems, and you’ve been contacted by a state enterprise to sell in Chad, Madagascar or Uganda, what do you do?
Or what if you’re a Halifax maker of marine propellers and you’ve been contacted by a fishing company in East Timor to set up a manufacturing plant there? Do you go?
Let’s say you’re an Ontario-based franchisor and you’ve had a serious inquiry about master franchising your food concept in Venezuela. Now what?
Most small-business people are likely aware of the 2011 revolution in Egypt. They probably also know Syria is in the middle of an undeclared civil war, that Iraq is plagued by internecine and sectarian rivalries, and battles with the Taliban continue in Afghanistan. There’s a good chance knowledge of the use of child soldiers throughout sub-Saharan Africa is on their radar, as well as the regular saber-rattling with Iran and North Korea on their supposed nuclear weapons programs.
It’s fair to say small-business people are acutely aware of the financial crisis hitting the Euro zone, particularly Greece, Spain and, soon, Italy.
But who really knows much about the countries that aren’t on CNN every night? How do you measure the political and economic stability in regions where you might want to do business, knowing that when there is no political stability, there is no economic security, and your investment of time and money may be lost?
How do you predict future stability in a country over the course of a year? When I was in Cairo in August, 2010, how could I have known the Egyptian Revolution was a mere five months away?
And what about the personal security of your people “on the ground,” selling into volatile countries or building a new water system? How safe and secure are they in Chad or Tanzania? Can they fish for salmon in Yemen, or are they more likely to be kidnapped?
Big Business may have the resources and research departments to comprehensively assess the stability and security of troubled or soon-to-be troubled nations, but where does the B.C. valve maker, the Halifax propeller builder or the Ontario franchisor go for information?
If you simply type “Madagascar” in Google’s search engine expecting information about the country’s political and economic security, you’ll come up with animated films featuring cartoon animals.
There is open-source information available for businesses looking to expand globally, particularly into emerging markets. Examples include the CIA's World Factbook and websites such as the Department of Foreign Affairs and International Trade (DFAIT) in Ottawa and the U.S. State Department. The latter two are primarily geared toward travellers but still contain information on broad political and security risks.
For franchisors, the International Franchise Association has information on other countries for companies considering expansion. When you’re researching a particular nation, you’ll want to pay attention to its “CPI Score,” which is published by Transparency International, and it is a measurement of the perception of the degree of corruption by business people and country analysts. Scores ranges between 10 (highly clean) and 0 (highly corrupt).
You’ll also want to consider the Ease of Doing Business Ranking, which is determined by the World Bank Group and examines conditions in 181 countries.
For more serious and comprehensive analyses, you might want to retain the services of experts. David Chmiel is managing director of Global Torchlight, a London-based group that advises clients on political stability, security and risk assessment worldwide. The organization assesses threats such as terrorism and political violence, civil and sub-state conflict, regional instability, strategic competition, interstate relations, armed conflict and domestic military activity, regime stability and legal security, as well as foreign government interference in economic and financial affairs. Global Torchlight is retained by companies big and small for strategic advice in the world’s hotspots, and it has a free monthly risk briefing available on its website.
“It’s arguable that the world’s more desirable resources aren’t in the safest places any more, which is one reason why China is investing in Africa in a massive way,” Mr. Chmiel says. “You have to go to more dangerous places now to find resources and to sell products.”
As developed economies remain stagnant, the less hospitable and more volatile countries may offer the greatest opportunities for growth and for overseas business investment. Citigroup produced a study in 2010 of the 10 countries that showed the greatest prospects for economic growth between 2010 and 2050. They included China and India, of course, but also Iraq, Egypt, Nigeria and Mongolia.
“A company's financial lenders, insurers or investors may want to see that a proper risk assessment has been completed before that company does business in the developing world,” Mr. Chmiel points out. “Equally, foreign investment is – contrary to what many people think – not always particularly welcome in a country. Failure to appreciate how foreign investment is becoming politicized can lead to companies finding themselves on the wrong end of politicians and the law. The string of recent nationalizations in the resource sectors in Argentina and Bolivia are cases in point.”
Global Torchlight’s business involves preparing specialized reports to suit a particular client's objectives, industry and risk concerns, but like all professional advice, the content is dependent on specific needs. The company works with clients of all sizes and at all stages in their business, from those considering entering a market for the first time to businesses with substantial operations that want guidance on how current events impact the overall stability of a particular jurisdiction.
Recent Global Torchlight analyses include the political and economic fallout from floods in Beijing and the criticism of China’s Communist government over poor disaster planning and substandard infrastructure. It’s also written on political gridlock in India reducing foreign investment, and the impact of elections in Mongolia.
Global Torchlight’s GT Watch Desk, available on its website, has hourly updates on political and security stories around the world that wouldn’t normally make the news, especially in the insular U.S. media.
“It may sound a cliché,” says Mr. Chmiel, “but in the business of political and security risk, forewarned really is forearmed. Companies that possess a detailed, focused, and nuanced analysis of a country's risk environment have a tool that will let them anticipate and assess the risks that could be devastating to their business, not only in one particular country but globally.”
Tony Wilson is a franchising, licensing and intellectual property lawyer at Boughton Law Corp. in Vancouver, is an adjunct professor at Simon Fraser University, and is the author of two books: Manage Your Online Reputation, and Buying a Franchise in Canada. His opinions do not reflect those of the Law Society of British Columbia, SFU or any other organization.