One of the driving forces behind the expansion of businessrelationships has been an effort to reduce risk. That isparticularly true in supply chains.

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The pursuit for lower-cost materials and efficient logistics isimportant to industries of all kinds. But reliability of supply andprecautionary redundancy have prompted firms to fling their supplynetworks across the globe.

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It's likely that in going global, companies have actuallyincreased their risk profiles. Broadening exposures can drive totalrisk higher, through actual exposure to new perils, or by makingexisting risks more difficult to manage.

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That is especially true in the global supply chain where goodsor services often come from countries with low per-capita income,weak regulatory control or where risk management practices andbuilding codes are virtually nonexistent.

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Yet even the industrialized world is not immune to global risks,as was proven by the earthquake and tsunami in Japan in 2011.Automobiles, car parts, electronics and many other sectors sawtheir supply chains disrupted, prompting them to diversify theirsourcing, production and inventory to non-seismic areas.

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Some firms respond to global supply chain losses by bringingoperations and manufacturing back to the U.S., thinking thatstateside risks are more controllable, or at least more knowable.What the on-shore trend implies is that security and control—or atleast transparency—are worth some cost.

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But for some organizations, such an option is not practical.Many companies increasingly want to know if they are makinginformed decisions that can make their organizations moreresilient. They need quantitative frameworks to manage unknownsthat may affect their supply chains on a broad level.

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One way to assess a country's resilience to supply chaindisruption is by examining it in three broad ways:

  • High-level economic risks specific to a country

  • Risk quality within a nation, which include property riskexposures and quality of risk management practices

  • Inherent supply-chain risks within that region, which are thetactical, logistical hazards of the specific modes and means oftransportation, storage, and distribution of goods.

In a recent assessment of more than 100,000 commercial propertylocations across the globe that my company insures, we uncoveredfindings that may be considered counter intuitive to mainstreamthinking. For example, the U.S. is often considered among one ofthe safest places for global business and trade. However, whenlooked at through the lens of supply chain resilience, the countrydoesn't come out at No. 1, due in part to political risk,corruption and local supplier quality.

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In contrast, Norway, Switzerland and Canada rank as the topthree most resilient countries in the world due to strongeconomies, high-quality infrastructure and a high level of riskquality. Of course, one also needs to consider some less desirableaspects of doing business in these countries, which include highwages and foreign exchange exposures.

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Similarly, if a global supplier produces inexpensive goods butis located in a country with lower resilience, such as countries inLatin America and the Caribbean, there may be another low-costsupplier nearby in a nation with higher resilience.

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Not every problem can be fixed, especially those on the otherside of the world. Sometimes it may be wiser to consider acceptingthat risk and later mitigate its effects.

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