Author Archives: Jared Wade

About Jared Wade

Jared Wade is a freelance writer and former editor of the Risk Management Monitor and senior editor of Risk Management magazine. You can find more of his writing at JaredWade.com.
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The Risks and Opportunities of Doing Business in Brazil

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China and India get the lion share of the headlines when it comes to emerging markets. But Brazil presents plenty of opportunities for the right companies.

Bryan Tedford, senior vice president of foreign casualty for ACE, gave a presentation on the nation’s potential and challenges for businesses today at the RIMS 2013 Conference & Exhibition in Los Angeles.

He noted that, as the world’s fifth-most-populous nation and seventh largest economy, Brazil is in a “fantastic position for economic growth over the next few years.” It has a strong, growing middle class that fuels a large domestic demand, which separates it from some of the other oft-discussed emerging markets. Tedford also highlighted the nation’s strong trade relationship with the United States, which he said actually sells about $11 billion more in goods and services to Brazil than Brazil sends back.

The nation also weathered the economic downturn better than most and has very little natural disaster exposure relative to many other growing economiesStill, there are plenty of challenges.

With a land area that is nearly as large as continental Europe, there is an imbalance of economic distribution in cities. This means that the opportunities for foreign companies reside mostly in crowded markets full of established competition. There is also a large informal economy in areas both urban and rural that can limit sales potential.

It doesn’t help that the legal and regulatory environment is very protective of Brazilian companies. In practice, new entities are very difficult to set up. “You really need to have some friends in Brazil … before you can really go after it,” said Tedford. “Having strong personal and business relationships seems to be the key for U.S. companies succeeding in Brazil.”

One way to make friends, says Tedford, is to give a small gift or token at a first meeting. Even offering something that may seem trite can be seen as a welcome gesture.

But don’t expect even friends to be punctual. “The conception of time is, I’ll say, liberal,” said Tedford. Don’t be surprised if an 8 a.m. breakfast meetings doesn’t start until 9:15. Perhaps it’s the traffic. Transportation and logistics can be a nightmare, so don’t expect to get anywhere quickly. The drive from the airport to São Paulo, for example, can take hours.

As far as more-business-related concerns, Brazil has strict liability rules that can make it difficult to deal with issues like a defective products and employment practices. There is also a short statue of limitations compared to the rest of South America, which can make it tricky to find time to deal with issues that must be addressed quickly.

In at least a few sectors, however, these are all mere inconveniences compared to the wealth of opportunity.

The agriculture industry has been booming in recent years, and this is only likely to increase. Sugar cane is especially enticing given the growth of the ethanol market.

The expansion of Petrobras, a Brazilian oil conglomerate that Forbes lists as the world’s 20th-largest company, may present even more chances for foreign companies to cash in. It is estimated that the nation will spend some $250 billion on contracts after the massive off-shore oil deposits discovered a few years ago, said Tedford. There will be a ton of new rigs and construction projects to be had.

There is also a tech boom. Brazilians are one of the largest purchasers of mobile phones, tablets and electronics among the emerging markets, says Tedford. This surging demand means more IT jobs and more infrastructure.

They also have another tendency: responding to direct-mail marketing offers. Brazil has a very good postage system, and it is helping move some of the economy outside of the cities. Companies in on the secret are able to make direct sales and raise brand awareness.

Companies in 2013 Are Less Prepared for Major Risks Than They Were in 2011

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(Click for larger chart)

Gloomy news: Companies across the world are now less prepared to deal with risks than they were two years ago. Even worse: Though companies have had nearly five years to respond to the global economic slowdown — which they cite as as the biggest risk to business — they are increasingly unable to confront the revenue problems it has created.

This is according to the 2013 Global Risk Management Survey released today at the RIMS 2013 Annual Conference & Exhibition by insurance broker Aon. To formulate its findings (displayed in the above chart), Aon compiled the “risk readiness” scores from companies’ responses to its survey and compared them to the results of its 2011 report.

“Risk readiness means a company has a comprehensive plan in place to address risks or has undertaken a formal review of those risks,” states the report. “In comparison with that of 2011, overall readiness for the top 10 risks has dropped by 7% to 59%. In fact, of the top 10 risks, all but business interruption has registered a decrease in overall readiness. Given the attention and scrutiny that risk management practices have received from stakeholders since the financial crisis, this is a disturbing trend and a bit surprising.”

As noted, companies still don’t know how to navigate the economic slowdown.

Aon offers some advice: “Since concerns over the world’s economy will not go away soon, organizations need to embrace it for the long-term and from a global perspective. We are no longer sitting on an island by ourselves. What happens on the other side of the world can have a direct impact on every organization, whether it has international operations or not.”

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It isn’t just the international exposures that threaten revenue, however.

In another startling trend, companies are increasingly losing money due to regulatory and legislative changes. A staggering 54% of companies reported income loss (in the last 12 months) due to regulatory and legislative changes — a huge jump from 22% in 2011.

In addition to surveying companies and breaking down how they are responding to individual risks, Aon also analyzed how businesses are using risk management while creating strategy.

The short answer: They are not.

Only 22% of respondents consider “improved business strategy” to be one of the primary benefits of investing in risk management. While there has never been a time when risk management was heavily used to create strategy, this is actually a 1% dip from the 2011 report, in which 23% listed improved business strategy as a primary benefit.

Javier Gimeno, a professor of strategy at INSEAD, a business school in France and contributor to the report, highlighted the concern these findings raise. He notes that many of the top risks cited by companies are strategic in nature. And to deal with these types of threats, companies must re-think their strategy-formulating process. It must incorporate risk management.

“The practice in many companies is still sequential: strategy development comes first…and risk management takes strategy as a given and manages the ensuing risks,” he wrote. “That may lead to strategies that are not sufficiently flexible or adaptive. When strategic risk management is embedded as an integral part of the strategy process, the strategies can become more robust to uncertainty, and more flexible and exploratory.”

He concludes with some advice for companies that want to be better prepared for the 50 top risks (see chart below).

“Developing capabilities for strategic risk management by top management teams and boards should be an important priority in these uncertain times.”

West, Texas, Devastated by Fertilizer Plant Explosion

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A mammoth fertilizer plant explosion late last night leveled much of a town called West in Texas. Reports list at least five and up to 15 dead and more than 160 injured. Several blocks of the small town near Waco have been wiped off the map by a blast that registered on the Richter scale. “Homes have been destroyed. Part of that community is gone,”  said Sgt. William Patrick Swanton, a local police officer, at a press conference.

One small girl explained the catastrophe as “a rock fell on the city.” Windows were blown out in houses miles away. Patients in critical condition have been airlifted to local hospitals.

The death, injuries and physical destruction (detailed here) are heinous. Listening to the child in the video account of the initial explosion, shown above, is heartbreaking. (More on that family here.) The area has been permanently altered by unthinkable devastation.

As more details emerge, we will know more about how and why this disaster happened.

Perhaps there are lessons to be learned, safety protocols to debate.

Until then, read how Zac Crain, who grew up in West, humanized a tragedy that comes far too soon after the attack on Boston that emotionally crippled the nation.

Crain wrote the following for Frontburner, a Dallas-focused website.

The fertilizer plant was about 100 yards from my old house — which may or may not still be standing. I could see it, and smell it, every day I was there. I played basketball in the park across the railroad tracks from it. The school that was partially destroyed was my middle school. I had a fight with a kid in the apartment building that was demolished; we later became friends and he showed me his uncle’s collection of throwing stars. My great-grandmother lived out her last days in the rest home behind that apartment building. The head of emergency services, Dr. George Smith, was my doctor. My friend Mike Lednicky’s parents’ house is gone. A lot of houses are gone. The explosion was the equivalent of a 2.1 earthquake, and it spit fire.

West is in my bones, no matter what. My dad was the superintendent of schools for West ISD for a long time. (He and my mom moved to Waco a few years ago.) My grandmother helped start Westfest, and we had a booth there for a number of years, selling beer bread sandwiches. I could map the entire town from memory. So it means a lot to me, maybe more than I realized. And it means at least a little bit to you. Every single one of you stops at Czech Stop for kolaches whenever you’re going to Austin or wherever, so keep that in mind when it comes to blood donations and everything else.

I stopped in West on the way home from Austin a few weeks ago. My friend Bob wanted kolaches. The last time I was really there was in September, for my high school reunion. I took a long look around my old neighborhood, in the shadow of the fertilizer plant. I’m glad I did, because it’s mostly gone now, and whatever’s left will never be the same. Miluji tě, friends. Stay strong. Sorry this was so rambling.

The only thing wrong with this passage is the apology at the end.

Tomorrow, I, like many East Coasters, will be boarding a plane to Los Angeles for the annual RIMS Conference. This year, after beginning a week with a tragedy so, literally, close to home in Boston, I will certainly be leaving part of my heart in West as I fly that way.

What to Know About the New Avian Flu Outbreak

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It’s hard to know what to think about this new bird flu. In one respect, this new strain, H7N9, is deeply concerning since it has never been seen before. On the other, these types of things tend to never be covered properly in the mainstream media so the constant, panicked, hype-fueled reaction does little good in terms of helping people prepare for a potentially serious public health emergency.

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Fortunately, Wired is here.

In a great primer, they delve into all the relevant information that any organization should know.

By now you’ve no doubt heard that international health authorities are deeply concerned about a new flu strain that has surfaced in China: H7N9, which so far has sickened at least 16 people and killed six of them. The outbreak has a number of features that are troubling. It emerged rapidly; the first cases were announced five days ago, and the first death apparently occurred on Feb. 27. It is widely distributed: Confirmed cases have been found in three adjoining provinces that wrap around Shanghai, and also in Shanghai municipality itself.

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And it is novel: H7N9 has never been recorded in humans before.

For infectious-disease geeks, it’s that last aspect that raises a particular nervous thrill. Most of the time, most people take flu for granted, to the point of not bothering to be vaccinated against it because they assume it will not make them very sick. But every once in a while, flu defies expectations, and roars up into a pandemic: worldwide spread, high numbers of cases, high rates of death. When a pandemic occurs, almost definitionally, it is because of a new strain to which humans have no prior immunity.

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In human terms, H7N9 is a new strain.

This is all made more confusing because it is happening in China, an infinitely complex place with an ambivalent and contradictory attitude toward transparency. Public health has never quite recovered from the realization, 10 years ago, that the Chinese government had attempted to conceal the beginning of the SARS epidemic, which was exposed — and transmitted to the world — because a doctor from a town in southern China traveled (some say fled) to Hong Kong to attend a family wedding (some say to seek treatment he could not have gotten at home).

In the years since, some parts of Chinese public health have seemed to open up enormously: The government has threatened sellers of spoiled and counterfeit food with prosecution, and researchers have been allowed to investigate the spread of antibiotic-resistant bacteria around the country’s new mega-farms. And yet, just before this new outbreak broke open, China was being challenged for not giving clear answers to why thousands of dead pigs were showing up in its rivers.

This is just the beginning.

Head over and read the rest to get the best take I’ve seen thus far on the largest health threat, both to individuals and business continuity, that the globe has seen in several years. Wired also offers a great list of resources to follow as this potential crisis continues to evolve. Worth bookmarking.