O7IM 2195A - Global Risks and Corporate Resilience

Even with the best planning, globalization carries substantial risks. Many globalization strategies represent a considerable stretch of the company's experience base, resources, and capabilities. The firm might target new markets, often in new—for the company—cultural settings. It might seek new technologies, initiate new partnerships, or adopt market-share objectives that require earlier or greater commitments than current returns can justify. In the process, new and different forms of competition can be encountered, and it could turn out that the economics model that got the company to its current position is no longer applicable. Often, a more global posture implies exposure to different cyclical patterns, currency, and political risk. In addition, there are substantial costs associated with coordinating global operations. As a consequence, before deciding to enter a foreign country or continent, companies should carefully analyze the risks involved. In addition, companies should recognize that the management style that proved successful on a domestic scale might turn out to be ineffective in a global setting.

Over the last 25 years, Western companies have expanded their activities into parts of the world that carry risks far greater than those to which they are accustomed. According to Control Risks Group, a London-based international business consultancy, multinational corporations are now active in more than 100 countries that are rated “medium” to “extreme” in terms of risk, and hundreds of billions are invested in countries rated “fairly” to “very” corrupt. To mitigate this risk, companies must understand the specific nature of the relationship between corporate globalization and geopolitics, identify the various types of risk globalization exposes them to, and adopt strategies to enhance their resilience.

Such an understanding begins with the recognition that the role of multinational corporations in the evolving global-geopolitical landscape continues to change. The prevailing dogma of the 1990s held that free-market enterprise and a liberal economic agenda would lead to more stable geopolitical relations. The decline of interstate warfare during this period also provided a geopolitical environment that enabled heavy consolidation across industries, resulting in the emergence of “global players,” that is, conglomerates with worldwide reach. The economy was paramount; corporations were almost unconstrained by political and social considerations. The greater international presence of business The main global systemic risks

The concept of theoretical and operational resilience

Resilience strategy as a factor of adaptation and change in companies and increasing geopolitical complexity also heightened the exposure of companies to conflict and violence, however. As they became larger, they became more obvious targets for attack and increasingly vulnerable because their strategies were based on the assumption of fundamentally stable geopolitical relations.

Business leaders expect greater political and economic confrontation between major powers in 2018 (1). Coupled with growing nationalism and populism and growing unilateral approaches by many countries toward several issues, including trade and climate, this is creating an environment for potential shock events.

- Cyber risk is the top risk for business leaders in advanced economies — and the risk that business leaders consider most likely to intensify in 2018. Cyber-attacks are projected to cost $8 trillion over the next five years, according to Juniper Research. And the risk is expanding beyond privacy exposures to include technology-driven business interruption.

- Environmental risk was identified as the top long-term risk for businesses. Recent extreme weather events, growing concerns about pollution and biodiversity, and scrutiny from investors and customers have elevated this risk in the minds of corporate leaders.

- Although feelings about the state of the economy are generally positive, vulnerabilities exist. The global debt to GDP ratio is at 318%, near an all-time high, and corporate debt to equity ratios have doubled since 2010. Meanwhile, the average time a company spends on the S&P 500 index has dwindled from 61 years in 1958 to 12 years today.

These trends demonstrate that both opportunities and risks exist for global businesses, said John Drzik, President, Global Risk & Digital, at Marsh. And many of the opportunities and risks stemming from geopolitical, societal, technological, economic, and environmental trends are closely related.

Specifically, the risk management function should be aligned with strategic priorities and risk professionals should devote more resources to emerging risks, focus on risk prevention in addition to risk response, and engage key stakeholders from across their organizations.

Learning objectives – after completing the course students should be able to:

- The main global systemic risks
- The concept of theoretical and operational resilience
- Resilience strategy as a factor of adaptation and change in companies

Karim SELOUANE

Enseignement électif

English

Autumn 2022-2023

Students are expected to work diligently on the contents for weekly in-class presentations where selected groups show their analyses as practical exercises to learn the course material and prepare for the requirements of the final exam. The group work and class presentations are seen as integral parts of the course activities intended to help students prepare for the final exam. The final exam report requires that students explain the theoretical rationales for essential risk management issues specified in the exam that can be related to the multinational case company studied throughout the duration of the course and/or other examples of own choice.

The grading of individual exams will consider the clarity, structure and supportive evidence displayed in the submitted report with respect to the course contents and the listed learning objectives. Furthermore, the responses should use tools, models, theories, and logical reasoning deduced from this and other relevant courses, based on clearly defined concepts. Conclusions should be supported by reliable evidence including data and information from public sources like annual reports, websites, press releases, industry analyses, professional reports, etc

The course will discuss different financial, economic, operational, and strategic exposures faced by multinational organizations engaged in global business activities and considers how the underlying exposures and risk events can be managed. The risk management topic is perceived from different functional perspectives including international financial management, insurance, management accounting, global value-chain management and multinational corporate strategy. A number of formal risk management frameworks and standards designed to address identifiable risks are discussed. These approaches are extended to also consider the ability to deal with uncertainty and unexpected events. There is further considerations of effects imposed by core values and responsible multinational management.

The course will integrate diverse contributions to better understand the multifaceted underpinnings of the field including formal Enterprise Risk Management (ERM) frameworks and more unconventional perspectives of High Reliability Organizations (HROs) and strategic risk-taking approaches.

The course will introduce conventional views on risk management from articles, book chapters, reports, and selective case studies but will also extend the scope towards effective management of unpredictable events in the turbulent global business environment.

The lectures attempt to be interactive requiring students to participate in class discussions combined with student presentations on concrete case analyses that receive in-class feedback.