While globalization has brought many benefits to businesses, companies need to spend more time studying the new and emerging risks involved and planning for low-probability events, Lloyd's warns.

In its latest “360 Insight Report”–”Globalization And Risks For Business: Implications Of An Increasingly Interconnected World”–Lloyd's noted that the last 20 years has seen rapid integration in societies and economies, offering unprecedented opportunities tempered by a range of new risks to contend with.

Among the challenges cited by the chair of Lloyd's, Lord Peter Levene, in a forward to the report: “Is globalization a runaway train? Are we now vainly looking toward national governments to solve problems and crises which are international in nature? Has world trade grown too quickly to be governed by the rules currently in place?”

“I do not believe that globalization is out of control, but we all–public and private sector alike–need to spend more time and care examining the potential impact of events which happen many miles away from our own work,” he said.

While the report suggests steps businesses can take to improve their risk management, however, “we do not suggest that there should be any reversal or attempts to stop globalization,” he said, adding that any such attempts would be “futile.”

Lord Levene said globalization has “brought the world immense benefits. These may have been spread disproportionately in the developed world, but it is the great growth of international trade which has brought 500 million Chinese out of poverty in the last 25 years and which has allowed many millions more to participate in a global economy which has helped life expectancy levels to rise.”

Globalization also brings responsibility, he noted. Multinational businesses that operate with offices, plants and factories in hundreds of countries, and which draw capital and shareholders from around the world, have “a central role in shaping globalization,” Lord Levene noted.

The tidal wave of globalization over the past 20 years has led to two new dimensions of risk, according to the report.

o Risks now transmit much farther and more rapidly than in the past.

o These risks can transcend traditional boundaries and take on systemic properties in which the source and final impact of the risks may not be regarded as connected. Managing these risks requires a rethinking of the nature of risk and contagion in the 21st century, according to the report.

Because of globalization, what were previously considered independent and unrelated risks are now interconnected and interlinked, and they are also more complex and systemic, Lloyd's found.

These risks are often unpredictable and have a high or catastrophic impact, Lloyd's said in its report. The types of risk resulting from globalization include economic and financial risk, global pandemic risk, infrastructure risk, supply chain risk, food security and geo-political risk.

Because of increased integration of societies and business, higher population density and higher asset values, the risks and their impact are growing, the study found.

To deal with these risks, Lloyd's said businesses needs to:

o Conduct systemic risk audits. A starting point, the report suggested, would be for each corporate risk officer or manager to review significant episodes of corporate transformation within their part of the business over the past 10 years and look for new potential patterns or concentrations of risk exposure when taken collectively.

o Explore different future scenarios. Ask whether these events can be contained or whether they will spread beyond control with potentially catastrophic results.

o Examine industry codes of conduct.

o Interaction with governments is vital, the report said. Business has an important role to play in ensuring that governments are aware of the new and potentially systemic risks facing organizations.

Special Reports /

Risk Management Key To Ensure Smooth Globalization, Lloyd&#039;s Warns

Related Stories

Recommended For You

Risk Management Key To Ensure Smooth Globalization, Lloyd's Warns