1. RISK MANAGEMENT IN MULTINATIONAL ENTITIES Chapter 16 Lecture 5

2. RISK MANAGEMENT ISSUES FOR MULTINATIONALS Cultural differences New or different exposures Logistical problems Economic issues Local (“in country”) management issues Local (“in country”) insurance issues

3. EXAMPLES OF CULTURAL DIFFERENCES Language and translation difficulties Different legal environments Holidays and time differences Local customs Privacy less a “right,” so security is a concern Attitudes toward patience and respect, e.g., ASAP, JIT

4. POSSIBLE NEW OR DIFFERENT EXPOSURES Potential catastrophes Monsoons/floods—India, Netherlands Corruption—Russia Terrorism—U.K. War—Middle East Political risk Confiscation and expropriation Kidnapping and ransom

5. POSSIBLE NEW OR DIFFERENT EXPOSURES Social unrest Strikes Work delays Property in transit Hijacking and piracy Shipping and customs delays

6. LOGISTICAL PROBLEMS Availability of risk manager “on site” Computer and phone compatibility and capability Staffing Local compulsory insurance (may duplicate existing coverage) Achieving uniform global coverage

7. ECONOMIC ISSUES Exchange rates (US$ contracts, hedging) Inflation Pricing in “tariff” countries “Domestic content” statutes Tax laws, e.g., treatment of insurance recoveries Trade agreements, e.g., NAFTA, EU

8. MANAGEMENT AND INSURANCE ISSUES Focus on local exposures Implementation of safety and loss control programs more difficult Admitted insurer requirements (penalty for use of non-admitted insurer) More compulsory insurance coverages

9. MANAGEMENT AND INSURANCE ISSUES Different insurance practices Contracts written more narrowly Insurers rarely provide sophisticated claim analysis Small credits for deductibles Limited coverage availability

10. MANAGEMENT AND INSURANCE ISSUES Broker selection Expertise Local presence Value of non-traditional insurance products and markets “Controlled master programs” Difference-in-conditions contracts (DIC)

11. CUMULATIVE “RISK RATINGS” The international country risk guide risk rating system Political risk, e.g., “economic expectations vs. reality” Financial risk, e.g., “repudiation of contracts by government” Economic risk, e.g., inflation

12. COUNTRY RISK RATINGS Highest Risk 1—Zimbabwe 2—Sierra Leone 3—Serbia and Montenegro 4—Iraq 5—Korea, DPR 6—Congo, Democratic Republic of 7—Angola

13. COUNTRY RISK RATINGS Highest risk 8—Liberia 9—Somalia 10—Guinea-Bissau Lowest Risk 1—Norway 2—Singapore 3—Luxembourg

14. COUNTRY RISK RATINGS Lowest risk 4—The Netherlands 5—Finland 6—Denmark 7—Switzerland 8—Ireland 9—Brunei 10—Sweden