This is part three in a series of Political Risk Management and Trade Development blogs illustrating how current events impact your business and its future.
A couple years ago I published a short blog about Lean Logistics - seeing things in a different light - and suggested companies focus on their logistics/supply chain functions and map out their value process. In case LEAN is new for you, check out this 10-Step process available on Amazon it’s a really great read focused on LEAN in the Supply Chain.
You’ve no doubt been looking at your budget and shrinking checkbook for any available funds to keep the lights on rather than implementing that automated process you’ve been saving years for. Reviewing your logistics/supply chain functions to find extra sources of income or create extra sources of income may be exactly the remedy your business needs.
Small and mid-sized businesses may not garner the huge freight discounts larger companies do, however the other side of this pandemic will have carriers, forwarders and 3pl’s blowing up your phone offering what they can to get you, or keep you in their book of business.
So here are some key points for negotiation to keep in mind when leaning up your supply chain:
My favorite topic! Like really? We have been through a pandemic before in the modern time?
Bottom line, there is nothing in our recent history that we can rely on to get out of the situation we are in now, probably why many in the media refer this period as “challenging”.
One thing we all know for sure is that a recession will immediately follow this pandemic and we are well versed and arguably well-positioned as a country to emerge right where we left off.
There have been more than 40 recorded recessions in the United States, and each is unique. Some last for months; others last years. The Great Depression was the worst in U.S. history. The financial crisis of 2007-2009 was the worst of many of our lifetimes. Each happened for different reasons, and are typically difficult to predict, except for this one... you know it’s coming, so perhaps its time to move from risk management to disaster recovery.
Disaster Recovery –
When disaster hits, your first concern is likely how to keep your business running as normal as possible. You’re likely doing that now.
Recessions, the key to surviving them is by reducing your expenses, working hard and above all… stay calm. History has taught us that preparation was the key to survive a recession, for many there simply is no contingency plan. My last two installments in this Risk Management series allude to analyzing alternative scenarios encompassing the crystal ball’s view into players like President Trump, the Democratic alternative (it is an election year), and China who arguably is set to profit from this global pandemic.
The underlying message here is that you are about to enter into a high-pressure exercise in change management. You’ll need to be flexible and ready to adjust to come out on top. Many financial advisors will tell you to get rid of personal guarantees, accumulate cash, make sure to pay your taxes and downsize everything… now! Other economists will tell you that with or without the pandemic, a financial recession was coming anyway… Covid-19 just brought it here faster. Personally, I do not believe we were heading to a recession, but that’s for another conversation.
Factors to consider:
These are all factors to discuss. My company employs this very same forensic approach for its clients in order to anticipate issues before they become issues. How can we help you?
This is part two in a series of Political Risk Management and Trade Development blogs illustrating how current events impact your business and its future. We’ll discuss the Coronavirus, Brexit and Locusts!
Now that we have been totally consumed by the Coronavirus, how has your business responded? Is it in denial, or is it paralyzed? What’s your plan to emerge? These questions could be asked of any of today’s topics.
For those of you who read part one, “Political Risk Management,” my view into the crystal ball has always asked a simple question, what happens before the unexpected occurs?
None of us could have ever imagined that a global pandemic would have put businesses around the world at a complete stop. Like most of you, I too want to know what the end of this scenario looks like. Politically we know that at least in the U.S. we shouldn’t expect President Trump to offer an FDR-style recovery. War with China isn’t a likely outcome either… Wars are usually zero endgame situations anyway.
Put aside President Trump’s dislike of China for a moment and recall that American businesses had been operating on the thought that integration of global markets would promote political cooperation and a leveling of those so-called “rules of the game” around the world… for the most part it did however, China didn’t play by the rules.
For decades, the two countries have had a basic bargain: the US invents, China builds, everybody wins. But there's a growing view among politicians in the US that, rightly or wrongly, this bargain is [a] bad one. Sure, it's given Americans access to cheaper imported consumer goods, they say, but it's also cost millions of US manufacturing jobs and strengthened a strategic adversary that doesn't share American values. At the same time, they say there are national security concerns about Chinese firms supplying technology to US critical infrastructure, including the 5G data networks that will power the next phase of the digital revolution. (GZERO Media, 2019)
This could be your first clue that the winds of change are soon to blow harder. Thus, you have a choice: keep your dependence on China or find an alternative strategy. Is President Trump’s nostalgia for a 1950’s USA complete with Mom, Baseball and Apple Pie our future? Are you ready if in fact it does come to fruition?
How you are positioned at the end of this crisis will ultimately dictate your future success.
Perhaps start your research with a review of one of my favorite videos from the 1980’s, Back to the Future! Available here at Amazon just in case you didn’t have a copy. www.amazon.com/gp/product/B00498XR9U/ref=as_li_tl?ie=UTF8&camp=1789&creative=9325&creativeASIN=B00498XR9U&linkCode=as2&tag=maplecreek-20&linkId=bd856204076792742ea9ae50ef60babf
What about British Prime Minister Boris Johnson’s battle with the virus? He’s now been moved to an Intensive Care Unit… what does BREXIT without Boris Johnson look like?
We wish Mr. Johnson a speedy recovery.
Locusts! This year’s swarm of locusts in East Africa are literally as widespread and, dare I say it… of biblical proportions which all but guarantee a humanitarian crisis that will far outweigh the current Coronavirus pandemic.
Some of you may remember famine relief fundraisers in the 1980’s, perhaps most famously was Live Aid, the impact of which became center of foreign policy for many western governments.
All of these situations will affect your business even if you don’t “do” business in Africa.
Political Risk Management and Trade Development run hand in hand which brings me to restate the point of this blog - successful companies are prepared, they anticipate threats and plan for all eventualities. My 30+ years in supply chain management have taught me a couple critical skills… anticipate the impact of the weather, illness, labor unrest and public discord. It didn’t prepare me for a global pandemic, but the recovery skills are the same.
So, what does the end of this pandemic look like and how do we emerge?
Take a step back… Look around… Here’s a chance to reestablish or reinvent your business. Even the fortune 500 will come out the other end differently. Is the opportunity manufacturing consumer goods? If it is, will they satisfy the appetite created by China’s low-cost production? Is producing that consumer good in Mexico a better alternative? After all Mexico is a party to the new USMCA where your product could be imported into the US duty free. What about this fourth industrial revolution and its promise to improve the quality of life throughout the world? Seems to me that improving the world’s quality of life is overdue and perhaps profitable.
One thing for sure is that the world’s economy will revive. Nationalism will continue build in the US, however the dependence on China’s support for many poor countries will likely be hard to overcome. You may need to rethink your positions in Africa and Central America where contracts and product specifications are tailored to Chinese products.
My company, Maple Creek International Trade provides Political Risk Management, Trade Development and Trade Compliance tools to navigate your business through these murky times by anticipating issues before they become issues.
The two topics are woefully intertwined yet many managers continue to view these as separate issues. I first saw this in the 1980’s… the NIMBY syndrome… you know, Not In My Back Yard… was the view of the world from many managers who failed to see the political events that eventually harpooned their international development ambitions.
Maple Creek employs a forensic approach to Trade Development anticipating issues before they become an issue by answering this simple question: “what happens before the unexpected occurs?”
Economic and geopolitical volatility create uncertainties. So, too, do changes in the deep-seated assumptions that drive business strategies. But what happens when the truly unexpected occurs? When political factors affect business? And when models, simulations, and forecasting all fail critically?
Typically, one of two things: Denial or paralysis. Both are understandable, but they do nothing to help an organization maintain or gain competitive advantage. There is a potential upside, however, for organizations with the foresight to mobilize in light of disruptive scenarios—and respond in a way that ultimately powers their performance.
Take for example Brexit and the 2016 election.
With Brexit the impact was immediate as the pound sterling lost roughly 16% of its value against the U.S. Dollar. Now what remains after all of this back and forth squabbling in the UK parliament is an unknown landscape. Those that recognize the complex geopolitical variables and develop a plan of attack for political risk management should be better positioned in the evolving UK and EU marketplace. Others that sit on the sidelines may see opportunity pass them by. So, how are you prepared?
In 2016 media outlets had already given the election to Clinton and many in the business world were prepared for another four years of the same. Enter Donald Trump. It has been repeated many times after the election’s autopsy that you should have been drowning out the noise and listening to what Mr. Trump was saying… who he disliked… who he thought treated the U.S. economy unfairly and what his ambitions were. All that is happening in today's economy was foretold, but were you prepared? I don’t think anyone could have been.
Political risk is not a new concept, rather the context has changed. Typical political risk analysis tends to be long on information about events but short on strategic advice. And when advice is offered, it’s often reactive and addresses individual risk.
So how does this relate to Trade Development? After all I did say the two were intertwined.
It would seem that since the 1970’s and maybe earlier, American businesses had been operating on the thought that integration of global markets would promote political cooperation and a leveling of those so-called “rules of the game” around the world… for the most part it did. Cars as an example no longer contained parts from one country, rather were a combination of parts produced in many countries and merely assembled in another. A car parts manufacturer who anticipated this globalization of the automotive industry would have taken advantage of this and expanded their sales in foreign markets… same for raw materials producers and so on.
Fast forward to today and the Trump administration’s highly publicized efforts to reduce the trade deficit with China. The original goal was a gradual opening of China’s political system… Turns out they had different plans and now the U.S. faces a strategic competitor who not only challenges our global dominance, but whose political vision and ideology may end up challenging its own.
In case you missed it, the U.S. position of global dominance is eroding, in part due to globalization’s success. China as an example, now has an economic middle-class and now threatens to challenge the U.S. tech market through creation of its own standards.
This doesn’t mean that Trade Development opportunities have gone the way of the 8-Track, rather for the savvy trader the political landscape offers a pro-trade and pro-investment flavor.
Many outlets have trumpeted this Fourth Industrial Revolution where trust and credibility are fast emerging as the key competitive differentiators for organizations around the world. Perhaps it’s something Generation X demands… Transparency after all… as we typically trust no one.
For those of you just hearing about this, the Fourth Industrial Revolution is a way of describing the blurring of boundaries between the physical, digital, and biological worlds. It’s a fusion of advances in artificial intelligence (AI), robotics, the Internet of Things (IoT), 3D printing, genetic engineering, quantum computing, and other technologies.
The promise of this revolution is the potential to improve the quality of life throughout the world. The peril may be the segregation in the job market typically low-skill/low-pay versus high-skill/high-pay and its this type of risk that could both make trade development a success and failure.
Political Risk Management and Trade Development run hand in hand which brings me to restate the point of this blog - successful companies are prepared, they anticipate threats and plan for all eventualities. My 30+ years in supply chain management have taught me a couple critical skills… anticipate the impact of the weather, illness, labor unrest and public discord.
Maple Creek employs a forensic, hands-on, comprehensive approach to international trade development ultimately providing you the opportunity to anticipate legal issues before they become an issue. Global trade compliance is strategic, we help our clients assess areas of vulnerability, remove avoidable costs, minimize risk and foster international trade development. See our blog on Reasonable Care and let us know how we can help.