One of the more unfortunate global trends of 2017 has been the prevalence of extreme and disruptive events and disasters – hurricane Irma brought devastation to much of the Caribbean, a major earthquake struck Mexico and wildfires have raged throughout parts of California. When such events occur, they can have particular consequences for international businesses operating in the area. What is the impact of major disruptive events on international business, and how can you protect your own business when expanding overseas?
Local Infrastructure
When disruptive events such as natural disasters strike a region, one of the most significant effects is the damage caused to the local infrastructure.
Most obviously this applies to the hard infrastructure crucial for the successful operation of businesses – transport and telecommunications links, for example. However, damage caused to the governmental, legal and financial institutions that make up a country’s soft infrastructure can also be significant. These institutions are important for creating the necessary conditions for businesses to expand and flourish.
This issue will be of particular concern in emerging markets, where infrastructure may already be weak to begin with, and where economic conditions may not be conducive to strengthening or rebuilding them. The turmoil that follows events like natural disasters can also exacerbate existing political instabilities in these regions, as was seen in Haiti following the 2015 earthquake.
Global Supply Chains
While the damage done at localised and national levels certainly has an impact, the ripple effects of natural disasters can spread far beyond the borders of the affected area. In particular, it can cause significant disruption to global supply chains.
Expanding your business abroad may well require you to establish a longer, more complex supply chain that spans a large number of countries and regions. As your chain grows, it also becomes more vulnerable to stresses and disruptions, including the effects of extreme events and natural disasters. Last year, several major companies, including Toyota and Sony, were forced to suspend production across Japan due to a shortage of crucial parts caused by an earthquake in the manufacturing hub of Kumamoto.
However, the far-ranging impact to the global supply chain caused by disruptive events is perhaps best demonstrated by the eruption of Iceland’s Eyjafjallajökull volcano in 2010. The flight delays and cancellations caused by the eruption’s ash cloud forced farmers in Kenya to dump large stocks of fresh food and flowers intended for export to Europe. Kenya’s Daily Nation estimated that the country’s economy was losing $3.8 million a day to air travel disruption.
Protecting Against Extremes
Although events such as these can be difficult to predict, there are ways to maximise your state of preparedness and take protective measures. When selecting a destination for international expansion, it is important to research whether the target market is particularly prone to certain types of natural disasters, and plan accordingly. Establishing a detailed expansion strategy that takes the necessary precautions and puts plans in place to ameliorate damage in the event of disruption could prove hugely beneficial in the long-term.
Applying this same level of oversight and due diligence to the whole of your supply chain will also help to reduce the damage caused by unforeseen events. It may not be possible to plan for every single eventuality, but it is possible to make sure that your supply chain is robust and strong enough to withstand extreme levels of stress and disruption.
When it comes to international expansion, careful planning and preparedness are crucial to ensure an efficient, straightforward and fully compliant process. Even against the most extreme of conditions, taking the time to fully prepare your business for its expansion is a crucial step in guiding it towards global success.
