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Bite-size Case Study

Boeing: mitigating socio-political risks to the supply chain

Published on January 2, 2019 Originally recorded 2014   4 min
0:04
We can see the dimensions of socio-political risk. You can see it on the scope, the macro risk being things that affect large entities, at the level of the country or the region. Micro risk being things that are specifically targeted at you in some way, for example, with firm or industry or nationality. Then this can appear in three ways, which is the focus of the risk. It could be operational. This is risk associated with your physical operations, such as environmental regulation. It can be related to your ownership, expropriation, or control of ownership. So for example in places like Vietnam, you're required to enter with a local joint venture partner, that simply is granting ownership without any economic legitimacy - So it's simply gifts ownership back. Then transfer risk, which is your ability to move things around, to move technology, to move profits sometimes in, sometimes out. So a number of years ago, the Indian government basically said that intellectual property rights such as brands, and patents would not be honored within India. Groups like IBM and Coca-Cola simply chose to leave the country.
1:16
But when we look at these risks, we can look at the managerial responses which is what we see on the next slide. The managerial responses can come in three different ways. One is that you can try and forecast things. You can try and predict better. I think this is self-explanatory and also very difficult to address. The more common ones are absorption and forestalling. Absorption is internalization of the political risks through the structuring, the company or the relationship. So you can bring groups in, you can venture with them, you can have alliances, you can create open monitoring systems, and so on down the line. The more interesting one, the one which I'll give you two examples of, is more related to forestalling. Forestalling and absorption have some similarities, because the tools are very similar; but this is a mitigation strategy. In other words, you're trying to mitigate this. So what you're doing, is you might have outward foreign direct investment, examples where companies would essentially try to remove some of their assets from threat. You can be proactive with public relations, you could have codes of conduct which are known as greenwashing - where you essentially try to create a perception of you doing good things; you could engage in political lobbying or extreme bribery; or you can generate a reputation for response. In other words, if you do something to me here's how I'm going to react. Things like having a strong strategic disposition to engage in specific actions or tit-for-tat strategies; which is like-for-like strategy.
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Boeing: mitigating socio-political risks to the supply chain

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