Top Risks for Businesses Expanding Overseas

As U.S. and Canadian businesses plan to expand their business overseas this year, their executives are worried about supply chain failures, data breaches and political instability, according to a survey by the Chubb Group of Insurance Companies.

The 2014 Chubb Multinational Risk Survey identified the top overseas business threat as supply chain failure (19%). A data breach/cyber event (15%) was ranked second, and government/regulatory investigation and political instability were tied for third (13%). Natural catastrophe (12%) was ranked fourth out of the 10 events listed.

The survey also found that one in two (52%) businesses plans to increase its overseas activity in 2014. Survey respondents expect to increase overseas travel (27%), introduce new products in foreign markets (27%) and increase employee headcount abroad (26%).

“Companies, large and small, continue to seek out new business opportunities abroad, and they increasingly are being confronted by political and economic turmoil, natural and manmade disasters, and regulatory hurdles,” said Kathleen Ellis, senior vice president and worldwide manager for Chubb Multinational Solutions. “As they expand their international business operations, companies need to take a more holistic or global approach to managing risk.”

Nearly half (45%) of the executives surveyed noted that overseas risks pose a greater threat to their company than domestic ones, while one-third (33%) reported that overseas risks are an equal threat. In addition, nearly half (48%) of the companies had experienced at least one loss related to conducting business overseas over the last three years.

Supply Chain Risk
Despite their concern regarding supply chain failure, only 56 percent of companies have a business continuity plan that addresses overseas risks, and 22 percent that do have a plan have never tested it.

Larger companies (74%) were much more likely to be prepared for overseas business interruptions than smaller companies (48%).

“The lack of business continuity plans and testing is disturbing,” said Ellis. “Companies are left exposed to significant supply chain failures and associated business interruption costs that can undermine their financial results and stability. It is equally important for companies to assess whether their overseas suppliers and vendors also have up-to-date, well-tested business continuity plans.”

Forty percent of respondents require their overseas suppliers and vendors to have a business continuity plan.

Employee Travel Risk
Two out of three (69%) companies have employees who travel outside the United States and Canada on business, according to the survey. Only 57 percent of the companies provide emergency medical care or evacuation assistance to those employees.

“Companies have a moral and legal obligation to take care of their employees when they travel on business,” said Ellis. “A global emergency assistance provider could mean the difference between life and death when an employee becomes seriously ill overseas or is caught in the middle of a military coup.”

Mobile Device and Social Media Risk
Employees traveling with mobile devices are increasing the potential for cyber-related data breaches. Nearly three in four (72%) companies allow employees to use their own mobile devices, such as smartphones, tablets and laptops, for work. However, companies with fewer than 500 employees (80%) are more likely to permit these devices, compared to 67% of companies with 5,000 or more employees.

“With many employees traveling outside the U.S. and Canada, more mobile devices, often with proprietary company information, are at risk of being lost or stolen,” said Ellis. “The good news is that many, but not all, executives recognize the threat and are taking steps to mitigate the risk.”

Eighty-two percent of companies require at least one security feature on mobile devices used for work, including password protection (75%), encryption (53%) and the ability to remotely wipe clean the device (39%).

Survey respondents also were asked whether their companies have established global social media policies. Sixty-three percent of the firms have social media policies that extend to overseas employees, and 23% of these firms have tailored the policies for different locations. However, large companies (77%) were significantly more likely to have an overseas social media policy than smaller companies (55%).

“It’s not surprising that larger companies appear to be better prepared to manage the risks that come with an increase in overseas activities,” said Ellis. “But smaller companies, which may be more financially vulnerable to such risks as data breaches or supply chain failures, can turn to agents, brokers and insurers that have underwriting, loss control and claims resources on the ground overseas to help them manage the risks of their international expansions.”

Chubb’s survey of 300 senior executives was conducted by JLA Strategic Research.

Source: Chubb