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Geopolitical risk insights important for manufacturers going global

February 4, 2016

Zurich helps manufacturers understand growth risks

Head of Specialties,

As Head of Specialties for Zurich Canada, Greg Irvine leads a team focused on delivering innovative... About this expert

Next-shoring strategy

Canadian manufacturers have a great deal to consider prior to launching operations in another country. That’s true whether it’s opening a factory, establishing a supply chain or, as Cindy Slubowski, Vice President, Head of Manufacturing for Zurich in North America, notes in her blog post below, assessing the geopolitical risks associated with “next-shoring.” 

If your company intends to expand internationally, talk to us. Zurich Canada is a leading provider of international risk management products, tools, and services, and our International team can help you establish a program with a comprehensive suite of insurance products and services designed for your risk management needs. You would get access to our My Zurich tool to quickly monitor and act on your risk management information, in all countries across all of your locations, in real time. You would also get help to ensure your program is compliant in other countries. With our Zurich Multinational Insurance Application (Zurich MIA), you can access regularly updated views of the wide-ranging insurance and premium tax laws and regulations that apply in countries around the world.

To help assess the risks your company may face abroad, our Risk Services team can call upon a global network of 900 risk specialists. If your plans include “next shoring”, establishing a supply chain, or some other form of international growth, Zurich Canada can help you manage your international and geopolitical risks.

Geopolitical Risk: 4 considerations when reassessing your next-shoring strategy

Why manufacturers should pay attention to geopolitical instability and cyber terrorism.

Author: Cynthia Slubowski

One of the biggest manufacturing trends in recent years is the adoption of a “next-shoring” strategy to produce products closer to a company’s end users, whether retailers or consumers. The benefit of next-shoring is that it allows manufacturers to increase the speed at which new products can be delivered, as well as more customization for each particular market. In addition, savings in shipping, warehousing and labour costs can also be achieved. 

A McKinsey report on next-shoring emphasizes that the strategy helps grow new markets around the world by focusing on the physical proximity to emerging markets, innovation, talent and customers. Technology innovation, in particular, is having a profound improvement on manufacturing through its ability to increase quality, allow faster communications and reduce downtime. 

However, as the Global Risks Report 2016 released by the World Economic Forum (WEF) in collaboration with Zurich indicates, there is a higher intensity of geopolitical risks in emerging markets and increasing rise in cyberterrorism. These trends could require manufacturers to reassess their next-shoring strategy as they can negatively impact the ability to have secure production locations, maintain innovation-oriented partnerships and access a stable labour pool.

The top 10 risks of most likelihood in the Report include two geopolitical risks—failure of national governance and interstate conflict—along with the technological risk of data theft. Illicit trade is also in the top 10 and a big concern for manufacturers, as it can undermine brand reputation and supply chain resilience. 

According to the 13,000 global executive respondents to WEF’s Executive Opinion Survey, failure of national governance is perceived as the highest risk to doing business in Latin America, Sub-Saharan Africa, Eastern Europe and Asia—key markets for new growth for many U.S.-based manufacturers and thus, likely locations for next-shoring. Operating in countries affected by poor governance can increase the risks and costs of doing business. It’s difficult to produce quality, timely products when there is a constant threat of social unrest and economic instability—risks closely connected to the failure of governance as displayed in the Global Risks Report’s interconnections map.

What should manufacturers focus on as part of a reassessment of a next-shoring strategy? 

  1. Remain flexible and open to relying more on global trade in order to keep a reliable supply chain and stable labour pool.
  2. Create more resilience in geographic instability by staying engaged with active participants in the region or countries, whether it’s people in government or in business alliances to stay ahead of developments.
  3. Keep informed of population and labour force trends—not only to stay closer to customers, but also to ensure a stable, reliable workforce.
  4. Develop redundant systems, offline backups and parallel networks to help thwart cyberattacks and defend critical infrastructure facilities from malicious threats.
The decision about next-shoring production is always a complicated one, but made more so by the increase in geopolitical turmoil and cyberattacks around the world.

The information in this publication was compiled from sources believed to be reliable for informational purposes only. All sample policies and procedures herein should serve as a guideline, which you can use to create your own policies and procedures. We trust that you will customize these samples to reflect your own operations and believe that these samples may serve as a helpful platform for this endeavour. Any and all information contained herein is not intended to constitute legal advice and accordingly, you should consult with your own lawyers when developing programs and policies. We do not guarantee the accuracy of this information or any results and further assume no liability in connection with this publication and sample policies and procedures, including any information, methods or safety suggestions contained herein. Moreover, Zurich Insurance Company Ltd (Canadian Branch) (“Zurich” or “Zurich Canada”) reminds you that this cannot be assumed to contain every acceptable safety and compliance procedure or that additional procedure might not be appropriate under the circumstances. The subject matter of this publication is not tied to any specific insurance product nor will adopting these policies and procedures ensure coverage under any insurance policy.

© 2016 Zurich Insurance Company Ltd