by Merlin Hernandez

Small businesses typically develop their risk profiles from past experience and management judgment. But current economic challenges would indicate the need to look beyond what is known for their long term survival. Smaller enterprises are increasingly finding lucrative opportunities overseas. Size and capitalization are no longer impediments to operating globally as information technologies have so reduced time-cost considerations as to afford small and medium enterprises (SMEs) entry to doing business internationally.

The globalized environment and its increased interdependence, however, has funneled a rise in the sources and speed of risk transmission in vital areas such as financial markets, energy, internet, and logistics to require an altered mind set in assessing risk. For example a distant earthquake or typhoon that causes internet disruption or extensive damage to port facilities can cause significant rupture to the supply chain or short term market potential. Additionally, the effect of the global financial crisis on capital markets, and the new global politics of debt and its impact on economic growth, taxation, credit markets, regulatory changes, and political stability bring greater uncertainty into the global business and investment climate.

In spite of what has been described as anti-globalization sentiments, SMEs are still finding that globalizing operations is worth the risks to reduce costs, improve efficiencies, and increase profits. Even for SMEs that choose not to ‘go global’ these risks may still affect their operational efficiencies. A well-structured global strategy can offer better supply chain management, opportunities to exploit overseas market niches, or centroid manufacturing advantages in order to compete more effectively. But in the dynamic world of contemporary business, new types of risks are always immanent, and firms need a risk management protocol that constantly scans the environment for new threats. This makes risk identification as a feature of historical data analysis limited in its ability to mitigate challenges in an ever-changing landscape.

Risk management plans also fall short when they are siloed within the business life cycle, phase, project, or unit in an approach that strategizes for causes and their direct effects. Failure derives from attempts to minimize the effects of those causes without accommodating the full long term strategic perspective, changes in the operating environment or new opportunities for competitive advantage that might arise out of those risks.

Since business activities remain organic and interrelated for long term efficiencies, risk management should take an aggregated approach with management action focused more on root causes rather than immediate causes, using integrated mitigation strategies for wider organizational benefit in the longer term. Contingency planning, disaster management, and a change management orientation would additionally provide an agile response matrix for greater risk tolerance and mitigation in a contemporary risk management approach.

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Merlin Hernandez is an entrepreneurial development and management consultant who operates mainly in the small and medium enterprise sector. She has extensive experience in International Trade. For more information on this topic, please send enquiries to businesssolutions1168@gmail.com

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