Ignore Country Risk At Your Own Supply Chain Peril: Insight/Intelligence Courtesy of D&B (Part 2)

Please click here for the first post in this series.

Organizations with global supply chains should look at country-specific risk factors covering a variety of areas (e.g., geopolitical, economic, weather, etc.) in their analysis efforts. But what are the current hotspots companies should be paying especially close attention to? D&B's latest Global Business Failure Report from June highlights some areas of concern, as well as a number of bright spots. Overall, the report suggests that business failures are dropping on a global basis, but still remain above the "pre-crisis" levels. D&B notes that in particular, Eastern Europe appears on better footing than previously, with insolvencies "falling sharply" from previous quarters and years. Brazil, Canada, France, Germany, South Africa and the US have seen falling insolvency levels as well.

What countries should companies monitor the most when it comes to rising risk profiles at the moment from a supplier insolvency perspective? Australia, Belgium, Iceland, Portugal, Switzerland, Taiwan and the UK top the list. Japan presents an interesting case in the fallout of the earthquake and tsunami. D&B expects "smaller suppliers will suffer" and "business failures to rise" with a "lag from Q3 onwards into 2012."

Overall, insolvency levels in emerging economies, as D&B defines them (not including China), fell 22.3% year over year in 2010. When it comes to industry sectors, manufacturing looks particularly healthy globally, with the "number of business failures in the sector [falling] by 16.9% year on year in Q4 2010 and by 10.5% in 2010 as a whole." On a comparative basis, this is a particularly strong showing compared with the 146.7% year-over-year increase in Q4 2009. Services company insolvency rates have declined as well, "albeit less sharply than the manufacturing industry." However, the outlook for services companies on a global basis heading into 2H 2011 "has weakened" which suggests "insolvency risk may increase again in this sector."

Spend Matters believes that the type of country-specific risk information that D&B provides in these reports should be an absolutely integral component of any analysis of risk in the global supply chain. But companies should not just consider country risk when it comes to their direct suppliers. Procurement organizations must take the lead in generating visibility to lower tier suppliers with operations tied directly into at-risk regions, considering geographic risk across their extended supply chain partners.

As organizations begin to consider supply risk and total cost analysis together, they'll begin to explore the intersection of such areas as import duties, export VAT changes and the like when it comes to putting a total (and forecast) cost on doing business with global suppliers. In fact, D&B launched a new Country Risk Module just this week, which will grant subscribers access to all the information in the country risk reports and allow them to monitor their suppliers against this information.

Stay tuned for continued analysis of country risk on Spend Matters. We look forward to making this a regular topic of conversation on our virtual pages.

Jason Busch

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