Evolving global risks bring complexity to tech companies
With each new country where a business establishes operations, there are new challenges to overcome.
Technology companies today operate on a global scale like no other time in history. Borders no longer constrain commerce, and organizations increasingly must deal with external forces across the footprint of their supply chain, digital networks, distribution channels and consumer markets.
Traditional disruptions — severe weather, tariffs, geopolitical risk — are expected and planned for. The “once in a lifetime” events, like a global pandemic that grinds the world economy to a halt, adds an entirely new dimension to supply chain management moving forward.
Black swan events can’t be predicted. But companies can control how to prepare so they can meet the challenges and overcome the obstacles when they face them.
Setting businesses apart
According to the “Supply Chain Leadership” report by Deloitte Consulting, 79% of organizations with superior supply chain capabilities achieve revenue growth that is significantly above average, while only 8% of businesses with lower performing supply chains have above average revenue growth.
It’s crystal clear: A well-functioning supply chain sets a business apart. Unsurprisingly, technology companies are leading the way when it comes to innovation, and they’ve played an integral part in turning the traditional supply chain model on its head. The nature of a supply chain for technology companies can be unique and incorporate not just physical aspects but data, intellectual property, and an extensive reliance on connectivity and the cloud.
To drive efficiency and anticipate issues, technology companies collaborate with their suppliers in real-time as part of a network-based model. Within the network, according to Digitalist Magazine’s “How High Tech Is Leading The Way In Supply Chain Transformation,” suppliers are the nodes that receive and send information such as plans and production schedules on an ongoing basis.
The network effect has increased efficiency across the world. And while it’s a net positive for the global economy, the proliferation of “network nodes” has created a unique situation for individual companies: Nearly all now have global reach, whether they intended to or not. And with that reach comes a litany of property and liability considerations.
Growing supply chain complexity
With the advent of the assembly line in the early 1900s, supply chains have steadily grown for more than a century. Today, the growth and complexity come from a variety of sources, chief among them is customer demands and delivery.
First and foremost, companies need to meet the demands of their customers in a timely manner. Customers not only want product and service choices; they also want options for how the product is delivered, according to Inbound Logistics’ “3 Main Sources of Supply Chain Complexity.”
The article also outlined cultural differences as a source of growth and complexity because for products sold around the world, companies need to address cultural differences and make modifications based on their target markets.
Companies also need to consider several other issues such as local legal and regulatory requirements, according to Inbound Logistics, and must make sure their suppliers can meet their quality standards. Some companies may have their specialized suppliers deploy customized processes, which could lead to a less responsive supply chain and limited options.
Evolving global business threats
Supply chain disruptions due to climate change, tariffs and geopolitical risk are also on the rise. Keeping a manufacturing plant operating at full capacity requires a dependable flow of materials. Wildfires, tsunamis and other events can damage infrastructure, resulting in delays of components and product.
Trade deals are another factor that could force a company to quickly change the countries used for suppliers, partners, and customers.
And changes in government can also result in new policies that implement updated insurance laws, change intellectual property rights, or alter deliveries.
In addition, evolving laws around unauthorized data use, privacy security, and intellectual property are creating new challenges for businesses as well.
As populations travel and trade increase, the risk of infectious disease events does too. In fact, the number of epidemics has continued to rise over the last 30 years as reported in a 2019 white paper published by the World Economic Forum.
Mitigating supply chain risks
Now while the majority of the risks are unavoidable, there are a number of things companies can to do to mitigate the impact of the supply chain risks. For example, companies should develop a supply chain continuity plan, map out their supply chain process, determine the location of suppliers, identify sole-source suppliers, and identify alternate suppliers to prevent bottlenecks
The role of global insurance
As American technology companies are under increasing scrutiny, it’s now more important than ever for these businesses to be good corporate citizens and maintain a favorable reputation.
Global insurance protects U.S. businesses that have multinational locations or operate throughout the world. With each new country where a business establishes operations, there are new challenges to overcome. An insurance claim has the potential to turn into a maze of red tape due to local laws, language barriers and customs that differ from country to country.
A global insurance policy helps protect a company’s operations throughout the world by providing coverage for a variety of risks such as property damage, bodily injury, or cyber and data breach.
Addressing local requirements
A decade ago, a single master policy might have been sufficient for a U.S. business to be insured in most international locations, but those days are over. Today, regulators are requiring locally admitted providers, increased policy limits and broad coverage terms that allow claims service to be delivered through a local policy contact.
An efficient, effective, borderless solution
Technology companies are significant drivers of the global economy whose operations often contain complex risks spanning the globe. Whether it’s interconnected supply chains with goods in transit or sales with the potential to create product and professional liabilities in virtually every country, technology companies face a myriad of risk management challenges.
The complexity of these risks requires a risk management partner who will invest the time to understand the unique nature of a company’s products and operations, including how and where property and human assets might be exposed, how supply chains are protected and how a company’s products might expose the company’s balance sheet to meaningful loss. The time to act is at the doorstep of tech companies around the world, especially those with operations spread across multiple jurisdictions.
Andrew Zarkowsky (Andrew.Zarkowsky@thehartford.com) is head of Global Technology at The Hartford. His focus is on underwriting execution inclusive of growth, profit and product innovation for the technology industry. He has nearly 20 years of experience in underwriting technology companies. Over the years he’s had the opportunity to see incredible advancements in innovation and the role that insurance plays in helping tech companies grow.
The information provided in these materials is intended to be general and advisory in nature. It shall not be considered legal advice. The Hartford does not warrant that the implementation of any view or recommendation contained herein will: (i) result in the elimination of any unsafe conditions at your business locations or with respect to your business operations; or (ii) be an appropriate legal or business practice. The Hartford assumes no responsibility for the control or correction of hazards or legal compliance with respect to your business practices, and the views and recommendations contained herein shall not constitute our undertaking, on your behalf or for the benefit of others, to determine or warrant that your business premises, locations or operations are safe or healthful, or are in compliance with any law, rule or regulation. Readers seeking to resolve specific safety, legal or business issues or concerns related to the information provided in these materials should consult their safety consultant, attorney or business advisors. All information and representations herein are as of June 2021.
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