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Protecting overseas operations.

PROMPTED BY THE EMERGING GLOBAL ECONOMY, many small and medium-sized U.S. companies are aggressively investigating the possibility of expanding their operations overseas. Higher profit margins, cheaper labor, deferred payments, tax breaks and increased participation in joint ventures are among the incentives offered by foreign governments desperate to improve their economies, upgrade their infrastructures and acquire advanced technology and skill. In addition, trade opportunities with the former Soviet Union, Eastern Europe and the Asia-Pacific region continue to grow, creating greater markets and opportunities for U.S. firms eager to begin or expand foreign operations.

Due to these trends, risk managers will become increasingly involved in setting up and maintaining global projects and operations in what were once considered far-flung locations. However, running a business overseas can be a risky endeavor. The office of the secretary of state reports that 308 attacks were committed against U.S. targets in foreign countries in 1991. Indeed, cultural, environmental, political and labor concerns can prove dangerous for U.S. firms operating overseas.

In response to this situation, many risk managers responsible for protecting overseas projects may accept the idea that insurance coverage offers the best protection against loss; general insurance protections, as well as specialty types such as kidnap and ransom, extortion and sabotage, and evacuation and repatriation, will be regarded as sure ways to cover personnel and company assets.

However comforting insurance protections may seem, they are far from adequate as a catch-all remedy for companies' operations on foreign soil. Insurance offers only retrospective protection for damages caused by local or regional crises such as labor disturbances, kidnap, extortion, terrorism or perils of war. Therefore, risk managers should ensure that their companies take proactive steps to deal with any crisis that may arise -- this entails complementing an insurance program with a comprehensive, integrated system of protection that includes contingency planning and a crisis intervention and management strategy.

The first step in protecting a company from risk is to ascertain the various threats that could conceivably arise and then to assign them low, medium and high threat designations. Naturally, each type of threat will require a particular response; possible solutions to the different types of threats should be worked out ahead of time, before a crisis situation arises.

LOW THREATS

Problems or situations that could be subsumed under the low threat designation include potential -- but not yet actual -- dangers to the community and its personnel. Perhaps the primary low threat risk involves the local community's perception of the company. Threats to an organization's image, its goals or assets can spring from a variety of sources. The risk manager must therefore ascertain that the public relations department is doing everything it can to generate positive publicity and address any negative concerns the indigenous community may hold about the company. It is essential to determine if a related or similar company was implicated in a past accident in which lives were lost or property damaged. If so, could the company somehow be blamed for or associated with this incident? A past accident could leave behind embittered individuals who believe that they have a score to settle with the company; this could create an opportunity for the dissidents to commit a terrorist strike against the firm, or to plant saboteurs and spies in its facilities.

Environmental and health issues must also be taken into consideration. Risk managers should ensure that the company's facilities are in good working order and that they can safely dispose of toxic substances. Additionally, if the company employs workers from the host country, it must create policies for these workers if they develop occupational disorders. In this regard, it is important to realize that environmental and pollution issues have often prompted acts of violence against companies.

One type of problem that can arise -- and which is often overlooked -- stems from a lack of cultural-sensitivity. Representatives of a U.S. company who act in ways that conflict with the mores and folkways of the native people can find themselves in troublesome situations. For example, if a team of U.S. managerial, logistical and marketing personnel assigned to structure a joint venture or contract in an overseas location acts in ways that members of the host country perceive as insensitive to their culture and background, the visiting team can be stonewalled for no obvious reason, and negotiations can easily break down.

In light of this issue, it is important to realize that certain behaviors that seem harmless or innocent in the United States can trigger strong reactions among people from different parts of the world. For instance, an adult touching the head of a child is very offensive in parts of the Far East; in Arabic countries, sitting with the soles of one's shoes exposed is definitely considered bad form. Throughout much of South America, a person with unshined or scuffed shoes is considered to be unconcerned with the people with whom he or she is speaking with. In one case, the host country's work force on a U.S. foreign military sales Middle East project was advised that the mainstay of their traditional Christmas dinner -- codfish -- would not arrive on time because of a logistics problem. A wildcat strike on this billion dollar plus project was narrowly averted when a load of codfish was flown in specially from Portugal.

As trivial as these issues may seem, they can have a major impact on corporations attempting to solidify a deal or close on a contract. These situations can be minimized through pre-planning by the risk manager. Therefore, the risk manager must develop and implement strategies aimed at preventing company personnel from committing blunders of deportment or conduct. Working closely with human resources, the risk manager can implement educational programs that address the culture, norms and mores of the country. To aid in this process, the risk manager may wish to contact federal agencies such as the Department of State and Commerce to obtain relevant information on particular countries. Additionally, many colleges and universities offer courses and seminars on issues relating to cultural sensitivity.

MEDIUM THREATS

Medium threats are any actions or events that pose a serious danger to the company's personnel, facilities, image, goals or means of profitability. The situations that constitute medium threats are numerous and varied. Among them are hostile infiltration of labor, lock-ins, malicious violence, civil disturbances, sabotage, extortion, natural disasters, fraud (whether from suppliers or vendors), bombings, attacks against company facilities, product contamination and kidnapping. To deter these threats, risk managers should be proactive rather than reactive; certain steps can be taken to avoid or minimize the effects of any of these crisis situations.

First, all company employees and dependents going abroad should receive a security awareness orientation. At a minimum, this orientation should include personal, residential and transportation safety briefings that will increase each employee's and his or her dependent's awareness of potential dangers. This orientation should also offer concrete strategies on how to cope with any adverse situations that may arise. Once the orientation has been completed, the employees and dependents should sign a statement indicating they have received a briefing that covered security issues, contingency plans and steps to be taken during a hostile event.

This type of document serves many purposes. First, it reflects the concern the company has for its most important asset, its employees; it also helps minimize liability concerns arising from "failure to warn, failure to protect" issues. A signed document can also reduce the likelihood of litigation, creating a defense for the company in situations where employees may claim that no one ever prepared them for the event; this was a common lament expressed by expatriate personnel crossing into Saudi Arabia from Kuwait after the Kuwaiti invasion. Finally, the document can help alleviate potential fears that an employee may have but is afraid to verbalize.

Risk managers should also work with the firm's security director to formulate an action plan consisting of strategies that outline the steps to be taken in case any of the crises mentioned above should occur. The plan should be submitted to, and approved by, the chief financial officer and the chief executive officer. At the very least, the plan should contain certain provisions, such as the following.

The first provision, called intelligence Capability, is aimed at determining the extent of any problem that may arise. This analysis should take into consideration what the worstcase scenario would be for any hostile or negative event. The second part of the plan, Threat Assessment, must determine whether each threat poses a danger to a particular employee or employees, company property or both. The Threat Assessment phase must also determine the target's visibility, value, and vulnerability, and spell out the methods of protection.

The third provision, Media Coverage, requires making one staff member actively responsible for public relations. Since the media can have either a benevolent or a damaging effect on the company, careful planning and foresight are needed to maintain a positive image of the corporation. Techniques such as well-synchronized press releases and, in the case of kidnapping and other life threatening situations, the securing of positive cooperation on humanitarian grounds by selected editors and journalists, can play a decisive part in managing the event. Once an event has become public -- which may, of course, be from the start -- coordinated press releases and access to the various participants must be strictly controlled. Within a corporation and its subsidiaries, and especially within a victim's family, there is a pressing need for reassurance and for as much information as can safely be released. It is desirable, however, to prevent independent and potentially damaging press interviews.

Next, a crisis management team should be established at company headquarters; typically, a senior vice president will be put in charge of this team. In addition, an incident management team must be established in each of the company's foreign sites to keep abreast of the local situation and to consider how emergency situations would be handled; in times of crisis, the teams will work together to solve problems and safeguard company personnel and assets.

Special consideration should be given to securing communications with the outside world. For example, during the 1979 takeover of the Kaaba shrine in Mecca by dissidents, the Saudi government terminated all mass communications; for three days no phone calls, telexes, or faxes could be sent or received. During the initial stages of the Kuwaiti invasion, the Saudi government chose not to disseminate any information about the invasion, forcing westerners residing in-country to rely exclusively on the Voice of America and the British Broadcasting Co. for information on the conflict. A shortwave radio provides one of the best and simplest methods of maintaining communications with the outside world, although other options may also be available.

HIGH THREATS

High threats to a corporation include a campaign by terrorists against the company, or the outbreak of civil war or an enemy attack. When the prospect of a high threat risk looms, risk managers can do a great deal to minimize loss to the company. Prior planning and preparation is the key. A four-tiered alert plan that defines the steps to be worked out to the minutest detail is absolutely essential.

Phase One, Alert, is precautionary in nature and serves to increase the security awareness of all personnel. During this phase, actions should be taken to ensure communications are operative, emergency supplies are adequate and transportation support requirements are reviewed; strategies are needed to deal with any medical emergencies that arise, and to make sure that personnel can be airlifted if necessary. In addition, the risk manager should ensure that emergency groups such as the crisis and incident management teams are functioning, personnel rosters are updated and all personnel are identified and their location verified. In the Alert phase, deployments to the site from the United States are suspended except as directed.

Phase Two, Standfast, which is occurs when conditions in the host country deteriorate to the point where, for the sake of safety, all personnel are required to remain in their quarters unless specifically assigned alert status posts. In Standfast, the crisis management team becomes operational 24 hours a day. Exit permit procedures initiated for nonessential personnel and support functions are enhanced and security increased. Emergency payments and check cashing facilities must be made available as the financial department prepares to withdraw funds from local banks. Personnel on vacation or home leave are advised not to return until notified by corporate headquarters.

Phase Three, Reduction of Presence, occurs when the U.S. Diplomatic Mission issues a warning of an impending national crisis. At the Reduction of Presence phase, the State Department will inform U.S. citizens of the desirability of relocating all but their most essential personnel. The crisis and incident management teams are now fully activated; these crisis teams must then decide whether an evacuation of dependents and non-essential personnel is necessary. Liaison with U.S. diplomatic activities is increased, and records are prepared for evacuation or destruction on order; nonessential records are destroyed. The incident management team takes on an increasingly independent role in managing the crisis.

At Phase Four, Evacuation, the chief of the U.S. Diplomatic Mission declares an emergency situation. This declaration dictates the need to evacuate all U.S. personnel from the host country. At this critical phase, the corporation will process all personnel for immediate evacuation. U.S. military aircraft capabilities may be used to supplement commercial charter services, and military emergency contingency plans may be executed for the protection of U.S. citizens. All business activities are abandoned and the appropriate personnel are put into place to assume control of any personnel remaining in-country. if possible, the company should evacuate essential records; if conditions do not permit this, all sensitive documents should be destroyed. When possible, duplicate property records will be left with an in-country national charged with the task of maintaining security of corporate materials and, to the extent possible, protecting abandoned company property.

Due to the potential dangers of operating a business or project overseas, the importance of preparing for any emergency or crisis cannot be overemphasized. Risk managers should also realize that all emergency plans and procedures should be tested before they are needed; it would be too late to do so after a disaster strikes. With effective protections in place, the risk manager will be in a position to ensure that the company is ready to respond to any emergency situation.

Terrorism: The Looming Menace

Terrorism represents one of the more frightening threats facing U.S. companies operating overseas: Because revolutionaries and terrorists tend to perceive the United States as a symbol of aggressive imperialistic capitalism, foreign exploitation and cultural hegemony, U.S. businesses make appealing targets.

In 1991, attacks against U.S. targets increased significantly due to the Persian Gulf War; 1991's 308 attacks, which constituted 55 percent of all worldwide terrorist strikes, represented a huge jump from 1990's tally of 193. In Western Europe, anti-American assaults numbered 93 in 1991, up sharply from 17 in 1990; most of these attacks occurred in Turkey, Italy and Greece. Numerous attacks on U.S. facilities also occurred in Peru and Colombia. Fortunately, most of these occurrences were low-level bombings that caused few casualties and little damage.

Perhaps surprisingly, the nation with the highest number of terrorist incidents against U.S. targets in 1991 was Turkey. The 75 Turkish attacks, up dramatically from 12 in 1991, were caused in large part by the leftist Turkish organization known as Devrimci Sol, or Dev Sol. Many of Dev Sol's anti-U.S. attacks -- some 30 property bombings during the first quarter of 1991 alone -- represented protests against Turkish involvement in the international coalition against Iraq. During this period, Dev Sol's activities resulted in the deaths of two American civilian Defense Department contractors.

Risk managers should also know that a number of governments continue to provide terrorists safe haven; travel documents, arms, training and technical expertise. In addition to support for terrorist groups, some governments engage directly in terrorism as part of foreign policy. Currently, the United States lists Cuba, Iran, Iraq, Libya, North Korea and Syria as state supporters of terrorism. Federal legislation and U.S. statutes impose trade and other restrictions on countries determined to have repeatedly provided support for acts of international terrorism.

Kidnapping a d extortion, whether or not committed by terrorist organizations, also present grave dangers to U.S. firms with overseas operations. The U.S. Federal Bureau of Investigation reports that U.S. financial institutions alone are victimized by nearly 200 nap and extortion incidents each year. In many cases, ransom demands have gone as high as $30 million.

These alarming figures demonstrate the vital need for a crisis response plan. And since terrorism is likely to continue despite end of the Cold War and the subsequent lessening of East-West tensions -- risk managers must do all they can to protect their firms from hostile parties operating on foreign shores.
COPYRIGHT 1992 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
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Title Annotation:Global Risk; includes related article
Author:Mahoney, P.F.
Publication:Risk Management
Article Type:Cover Story
Date:Oct 1, 1992
Words:2824
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