PARTNER CONTENT
by ZURICH
This content was paid for and produced by Zurich in partnership with the Commercial Department of the Financial Times.

Hotbeds of opportunity

article 50

At a time of heightened geopolitical risks, business growth can help defuse volatile global scenarios

Before the telecom company Roshan began operations in Afghanistan in 2003, the country’s communications infrastructure was limited and controlled by the Taliban. To make an international call, Afghans had to travel to Pakistan. Today, Roshan has more than 6.5 million customers, and its network spans 287 districts and cities in all of Afghanistan’s 34 provinces. The company claims to have invested approximately $600 million in the country, creating 1,100 new jobs for employees it trains, and indirect employment for more than 30,000 people.

“Success in a challenging market is marked by local knowledge, cultural sensitivity, awareness of risks, and measures to protect your investment if the local situation deteriorates.”

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Those numbers are very meaningful in a country where limited employment opportunities help fuel instability, and joining insurgency groups that pay roughly $20 per day is considered a job option.

“Businesses can bring in cash, know­how, networks and production facilities,” says Richard Ghiasy, Researcher and Project Manager, Stockholm International Peace Research Institute (SIPRI), Armed Conflict and Conflict Management Program. “They can push for reform, and improve productivity and cultural understanding. Roshan has connected people and markets, but it also helped decrease the leverage Pakistan had with its communications infrastructure. People usually look to the public sector to solve big challenges, but the public sector can learn from businesses that do a good job of managing high­risk locations.”

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Why not look to businesses?

This is particularly relevant today, as geopolitical risks such as interstate conflict and terrorist attacks are increasingly interconnected to other global risk factors. “The Global Risks Report 2016,” published by the World Economic Forum (WEF) in collaboration with leading institutions such as Zurich Insurance Group, notes that the “international security landscape is in flux, challenging the assumption of continued social, political and economic progress that characterized the first 25 years after the end of the Cold War.”

Very few global companies conduct business with the goal of reducing the magnitude of geopolitical risks—but how and where business is transacted can play a meaningful role in increasing or decreasing risks. “The Global Risks Report 2016” suggests that the private sector could play a larger role in international security. According to the report, “the implications of security risks affect companies assessing where to invest and do business as much as they affect governments engaged in trade, diplomacy and maintaining the security of their citizens, yet the potential of the private sector to contribute to peace and security is not reflected in global security mechanisms or at the multilateral level.”

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“Companies have to re­orient their focus and business models in order to operate in a new, interconnected corporate landscape where geopolitics and global economic trends have a great impact on business operations.”

In a hyper­connected world, businesses may no longer have the luxury of waiting out geopolitical crises while trying to limit risk exposure; and avoiding investment in known or potentially volatile places does not insulate companies from volatility. A world of interconnected—and sometimes instantly distributed—risks means businesses should consider influencing international developments, as well as increasing their own resilience to these risks.

“When I talk to corporate executives who are considering making an investment in an emerging market, they’re interested in how they can protect against risks, how they can build resiliency into their system, and how they can shore up their balance sheet against unexpected challenges,” says Jim Thomas, Global Head, Credit and Political Risk, Zurich Insurance Group. “It comes down to knowing your exposures and adjusting your strategy accordingly, but that’s not as simple as it sounds.”

In Thomas’ experience, the companies that have had the most success in operating in challenging environments are culturally savvy. Such businesses seek to understand the local market and don’t fall into the trap of viewing markets as developed or developing, as emerging or as emerged. “A sound investment in a challenging place should bring value to the local economy and an increased tax base at the federal level,” says Thomas. “More holistically, success in a challenging market is marked by local knowledge, cultural sensitivity, awareness of risks, and measures to protect your investment if the local situation deteriorates.”

Business in action

The global refugee crisis remains a major global risk that is both fallout from and a contributor to geopolitical tensions and conflict. It also provides a view into how business can collaborate with the public sector on global risk issues. Many companies are providing much needed financial support to UN agencies, funds and programs, yet business leadership is extending far beyond financial donations. In September, the UN Global Compact, in partnership with the UN Refugee Agency, launched the “Business Action Pledge in Response to the Refugee Crisis” to encourage the private sector to help with widespread societal disruption. The pledge calls on companies with operations or supply chains in countries which refugees are coming from, going to or passing through to take action.

“If businesses engage in a new territory or in a deal with global risks, they rightly invest money and the time of so many experts into risk analysis. At the government level, it’s often the case that a single person makes his or her own due­diligence analysis of internal risks, external risks or global risks. In that sense, I think the public sector could learn a lot.”

“As the number of displaced persons continues to increase, 2016 needs to be when public and private sectors truly embrace the importance of business contributions to peace and make collaboration imperative,” says Lise Kingo, Executive Director, UN Global Compact. “Companies have to reorient their focus and business models in order to operate in a new, interconnected corporate landscape where geopolitics and global economic trends have a great impact on business operations. Directly addressing complex geopolitical risks extends beyond the scope of business. However companies, through their own operations, have the power to address societal risks—such as injustice and inequality—which is often where geopolitical risks develop.”

It’s clear businesses aren’t shying away from helping reduce some global risks, but Ghiasy believes governments can also learn from how businesses assess risks. “Businesses keep an eye on the target at all times,” he says. “Profits in high­risk areas are tied to many things, including public relations and CSR [corporate social responsibility] spending, but businesses are very pragmatic about what they do as well. If they engage in a new territory or in a deal with global risks, they rightly invest money and the time of many experts into risk analysis. At the government level, it’s often the case that a single person makes his or her own due­diligence analysis of internal risks, external risks or global risks. In that sense, I think the public sector could learn a lot.”

Key takeaways

  • Resilient businesses can help create stability in geopolitically challenging markets.
  • A sound investment in a challenging market combines local value creation, cultural sensitivity, risk awareness and measures to protect your investments if the local situation deteriorates.
  • The public sector can learn from the ways businesses effectively manage risks in difficult geopolitical situations.

Download the full report:
The Global Risks Report 2016

The Global Risks Report 2016: Executive Summary