By Kurt Seifried (kurt@seifried.org)
A famous Canadian (David Suzuki) coined the phrase “think globally, act locally” as a rally cry for the environmental movement. The idea was to look at the big picture (think globally) and then take a bit sized piece and get it done (acting locally). This was a huge step forwards for the environmental movement, now instead of saving the entire planet all at once you could simply do something manageable, like carpool or start recycling. This type of thinking has also been adopted by many companies, pursuing global strategies (outsourcing/etc.) while staying entrenched in thought processes that reflect a local bias.
A beautiful example of this is a company I work for, I am based in Canada and the company is based in the USA. I invoice the company and they send me money, it works well. But a few years ago I looked at the economics of the situation and requested that I bill and be paid in Canadian dollars instead of American dollars. The reason for this was that I strongly suspected the US dollar would weaken over the next few years, so rather then get paid in US dollars that I thought would get weaker and weaker (thus diminishing my real income) I decided to hedge my bets and move the payments to American dollars. The company didn’t mind and agreed to this arrangement, however I don’t think they thought about the future much. The company keeps the money that they use to pay me in an American dollar account. Today that means $1 US buys $1.05 Canadian. A year ago that same dollar US bought $1.13 Canadian, a year before that it was $1.21 Canadian, $1.33 in 2004, $1.40 in 2003 and back in 2005 that $1 US would have bought $1.59 Canadian. In real terms that means I have become about 33% more expensive. Many US companies have not given much thought to the weakening US dollar, for some this has a benefit, the products they export to foreign countries have become cheaper to buy, but for any US company that needs to buy foreign goods and services they have become significantly more expensive.
The good news is that when it comes to financial risks there are many well understood ways to hedge against this type of risk, you can buy foreign currencies and hold them, you can move manufacturing to a foreign country and do business from over there as well, and so on.
The bad news is that there aren’t so many ways to hedge against other less understood risks of operating globally. For example Intellectual Property rights. In the US they are well understood and enjoy strong protection (copyright law and enforcement, contract law and enforcement, etc.). Globally, especially in some Asian countries (*cough*China*cough*) it would be charitable to say that Intellectual Property is not as strongly protected. In fact in many countries not only is the law protecting Intellectual Property weak, the enforcement, and indeed cultural mindset is often completely at odds with the idea of protected Intellectual Property. Some possibilities to deal with this is to encourage partner companies to open subsidiaries in the country you operate out of, thus bringing portions of their corporate entity into a jurisdiction you can probably get protection and enforcement from.
The risks of operating globally will only continue to increase, on a personal level I can barely find anything in my house that has actually been manufactured completely within Canada (I think I have some cookware and that’s about it). I can’t imagine a company of any size (especially in the technology industry) that doesn’t do business globally (all those “Made in China” parts for example). Companies are not giving sufficient thought to the risks of operating globally, and there’s a good chance it might bite them in the future. Like any security problem the best way to start with an assessment, figure out how exposed you are, identify the risk explicitly, and then you can start working on a plan to minimize, mitigate or accept the risk.
