An Approach of Assessing Country-Level Risk

Throughout my career of doing international business, risk is the one item that I have come to understand, appreciate and embrace. Risks may be classified in various ways such as internal (weaknesses) and external (threats) with variations depending on geopolitical and socioeconomic conditions. Whether it is for a business where I hold an equity stake or corporate clients that I am advising, identifying, evaluating, and mitigating risks is an important exercise that I perform.

The Economist Intelligence Unit (The EIU) produced a webinar on Aug. 2, 2017 to promote its risk briefing and scenario planning services. While I am not recommending subscribing to these services, per se, I found particular value in The EIU's approach of assessing country-level risk (listed in alphabetical order):

1. Financial Risks: How healthy is the local financial system?
2. Foreign Trade and Payments: How easy is it to get inputs/money in and out?
3. Government Effectiveness: Does political culture foster strong business environment?
4. Labor Market: Could labor market factors disrupt operations?
5. Legal and Regulatory: Will the legal system safeguard investment?
6. Local Infrastructure: Will infrastructure deficiencies negatively affect operations?
7. Macroeconomic Risks: Is the economy stable and predictable?
8. Political Stability: How stable are political institutions?
9. Security: How safe is the physical environment?
10. Tax Policy: Are taxes low, predictable and transparent?

I continue to have the privilege of working in some amazing (and challenging) countries. Different risks exist in industrialized versus developing countries. The EIU's approach of accessing country-level risk is helpful in identifying and assessing those risks.

It is important to note that not all risks come from negative sources. Risks may come from positive sources or opportunities. Expansion and growth are opportunities, but they also bring additional risk. The ultimate goal is to minimize the effects of risks on your business.

Will the questions above help you evaluate the country-level risk for your business or organization?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.