Effective Risk-Management for a Business

World-Wide Concepts and Risks Posed by the International Environment

World-Wide Concepts deals with a wide variety of products which are profitable but which pose a number of potential legal risks in the form of biotech instruments and drugs. It also has a number of different operations spanning various nations from its manufacturing facilities in China, assembly facilities in Mexico, biotech partners in Israel, and software design partners in Russia and India. All of these countries have very different systems of justice and standards of ethics than the United States in terms of their way of conceptualizing the fair and free way to do business (Meiners, Ringleb, & Edwards 2012, p. 5). For example, India has had a notorious reputation for corruption, which is not atypical of developing world nations which have undergone rapid industrialization. "Socially-acceptable practices" often conceal what would be illegal in other nations and the "inherent opacity of India's business environment, weak implementation of law and its complex and often inadequate regulatory context" means that nations from the United States where regulation and ethical standards are more obviously aligned can make navigating the area a challenge (Owen 2014). This is also true of China and Russia. In China, a combination of underpaid government officials and a rapidly-expanding business culture has resulted in a nation whereby "the prominence of personal relationships over contractual and legal obligations, the scope of discretion and power afforded to government officials, the rapid growth" has made corruption normalized (Hinze 2014).

Tolerance of corruption and a system that is the product of social conventions rather than respect for the law is widespread but that does not mean that U.S. firms can simply ignore the law when operating abroad. "For instance, some cultures will ignore the use of 'consultation fees,'" i.e. bribes, "that would violate the U.S. Foreign Corrupt Practices Act. This 'tolerance' does not change what is understood as corruption in those nations; it only changes people's willingness to accept various forms of corruption in others and in themselves" (Mallinger, Rossy, & Singel 2008). U.S. firms must still abide by the FCPA regardless of standards abroad. Thus an important part of risk management is the need to be vigilant about different local standards regarding corrupt practices so that World-Wide continues to abide by U.S., not local foreign standards. Not only can becoming being embroiled in a legal or regulatory scandal result in legal costs: it is also bad for business in an era where information can be rapidly disseminated online and ethics is an important part of the image an organization must present to the world. "A commitment to a code of ethics, which takes a firm beyond its legal obligations, is generally not binding on a company" but is still taken seriously by consumers and employees and " violations that are ignored may cause bad press for a company and bad morale for employees" (Meiners, Ringleb, & Edwards 2012, p. 21).

Another risk that every globally-based nation must face is political risk. Russia and Israel are both political hotspots and disruptions of operations can pose real threats to the normal standard operating procedures of doing business. That is why risk insurance is essential and must be factored into the cost of doing business abroad. "Most political risk insurance is written by members of the Berne Union, an international organization of export credit agencies, multilateral trade groups and private insurers" (Braun 2012). The most obvious example of a political risk is an increase in violence in the Middle East or a conflict between Russia and one of its neighbors. However, there are also risks in the form of "changes in local banking or business regulations, manipulation of exchange rates, changes in foreign ownership rules or legal technicalities" (Braun 2012). Having a crisis management plan (for example, if operations need to be shifted from one nation to another) as well as the necessary insurance backing to mitigate such problems is essential.

One strength which World-Wide does possess is diversification of its operations and assets. While it operates in a number of high-risk countries on one hand, it is unlikely that all of the nations where it is based would have crises at the same time. Its diversification of products also acts as a risk management strategy for threats posed by other problems which might arise specific to its industry, such as the failure of a particular drug to pass the necessary regulatory hurdles for approval. "In managing risk, pharmaceuticals and life sciences companies spend the most time on activities aimed at controlling regulatory risk, which they perceive to be by far the biggest threat to their organizations" ("Risk management in the pharmaceuticals and life sciences industry," 2009). Different nations may also have different regulatory standards and requirements for drug approval and an internationally-based company must be vigilant about this as well. There must also be a balance between continuing to produce drugs that have been profitable in the past and developing new drugs given that once a drug 'goes generic' its profitability will radically decrease.