“What has changed in the 25 years since I started in this business is that we are living in a more connected world today,” says Pierre. On the upside, that means business is easier to conduct on a global scale. Almost everybody now has the ability to reach out to emerging countries or to conclude a contract and to secure a sale in a foreign country.
On the downside, this means that when something goes wrong in one part of the world, you can feel the impact halfway around the globe – directly, if you are dealing with the country in question, or indirectly because of your diverse supply chain. Remember when the 20,000-tonne container ship “Ever Given” got stuck in the Suez Canal in March 2021, shutting down international trade for a week?
Another good example is when your own government decides to ban sending people on the ground to the country where you are executing your contract. “You would have to stop the performance of your contract,” says Pierre, “and you would be exposed to additional expenses and not be able to keep on performing or to keep invoicing and receiving payment from the customer in that specific country. This ban would clearly translate into a loss for the contractor.”
As a last illustration, let’s take a change of law or a regulation that is super-selective and targets only foreign companies. “That could be seen as a soft discriminatory measure and could be covered as a political risk,” says Pierre. “But only if it’s a discriminatory measure. Any governmental decision that would impact all the companies located in a country is not captured by a political risk insurance policy. These are risks that all business owners are facing when running a business.”
Political risk management is essential in these situations in order to assess the risks and define actions to protect your company.