Protest This! The Country Supply Risk Shake Up – Hong Kong Climbs the Risk Index

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The stability of countries in which our suppliers are based or have facilities has a direct impact on overall risk levels in our supply chain. Yet we often don’t pay enough attention to this macro supply risk factor. Moreover, compounding the challenge is that country supply risk can change quickly. Consider the case of Hong Kong, which according to analytics and information provider Maplecroft, has experienced “the largest increase in risk over the last quarter, due to the mass democracy protests of recent days. The Chinese administered territory fell 62 places in the ranking from 132nd and ‘medium risk’ to 70th and ‘high risk.’”

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Risk in the Asian supply chain is a fact of life – owning to both the pace of change in these emerging (and emerged) economies as well as related challenges (e.g., logistics infrastructure) and the seeming higher potential for black swan events (e.g., floods, tsunamis, earthquakes, etc.). But you might not have considered the level of country risk due to civil unrest, specifically, that is concentrated in Asia.

In this regard, Maplecroft observes that “civil unrest in a further 69 countries is considered as potentially posing a ‘high risk’ to the continuity of business operations, including in the Asian manufacturing hubs of Thailand (16th), Indonesia (23rd), Vietnam (24th), China (26th), India (28th), Cambodia (32nd) and the Philippines (35th). As a result of civil unrest some companies operating in and sourcing from these countries have faced severe disruptions, including from strikes, while the economic impacts have also been significant.”

Consider how “anti-Chinese protests in Vietnam in May 2014 led to violence and serious property damage, not only of Chinese but also other foreign-owned assets. Many factories were forced to suspend production, while those worst affected by the violence saw falls of between 4 and 16% in their share value.” Or consider the case of “prolonged anti-government protests in Thailand, which culminated in a military coup in May 2014, shut down much the country’s commercial center. The protests not only disrupted business operations in Bangkok, they caused the IMF to lower the 2014 projected GDP growth rate to 2.5%, down from 5.2%, which could cost the country an estimated US$9.8 billion.”

Staying on top of overall country risk and related political/social risk factors is not something most procurement organizations do enough of. But perhaps they should, starting with services like Maplecroft, Stratfor (which we subscribe to) and others.

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