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Posted on April 27th, 2014, by

Africa and the Middle East are the top destinations of business expansion. They have a real business potential because these economies are booming.

Buckley & Casson (2009) claim the company that is preparing to expand its operations to an international market needs to pay special attention to the regional and local conditions, and regulatory environment that influence the business processes in the certain country. It should be specified that the regulatory environment and governance influence often are the decisive factors in attracting new businesses into the countries. Therefore, assessment of the potential threats to the company that aims to launch its business in particular region plays a significant role, because such factors as for instance high level of corruption or poor economic position of country may lead this business to fiasco.

The major threats imposed include political/administrative threat including corruption, terrorist threat and cultural differences. These threats affect company’s operations such as shipping, personnel security, and business continuity.

Unfortunately international businessmen believe that launch of the business in emerging countries (and especially in Africa) is risky because of its unfavorable location and also because of its perceptions as the region of civil unrest, starvation, deadly diseases, and economic disorder. (FDI Africa policy brief, 2011) But these negative perceptions of Africa and the Middle East appear to be not that important for Chinese companies that have already managed to invest hundreds of billions of US dollars into African economies. Therefore Western companies should consider the opportunity to launch their operations into these emerging markets without further delays, despite the possible risks.

One of the obvious reasons why the business is not flowing into these regions is their image. For instance, Africa has unfavourable location image and often is perceived by the public as civil unrest, starvation, deadly diseases, and economic disorder.  (FDI Africa policy brief, 2011) The unattractive publicity of Africa has caused the discourage of the businessmen, who prefer other economically perspective regions instead.  And it should be added that even in the case when African countries demonstrate a positive economic results this progress is rarely reported by media and therefore public often is not aware about the African economic developments.

  1. Shipment security

According to Tarnef (1993) product shipment is the most familiar risk to the majority of risk managers. Terms and capacity, rates and the cost containment are clearly influencing factors but the safety of the shipment is obviously not the least important thing too.  Both Middle East and Africa aren’t safe in terms of shipment operations.  The danger is caused by the civil unrest in a number of countries of Middle East region and Africa, and by the activity of Somali pirates that impose significant threat to international shipping these days. The shipment in these regions is subjected to theft, water damage, breakage, leaking, crushing, contamination or infestation. (Tarnef, 1993) Therefore, as the director of security I will have to review our company’s insurance coverage and procedures for handling the shipment of goods in these regions in order to determine a safe and cost effective approach to protect company’s operations. (Tarnef, 1993)

As for the Middle East, it is a very complicated region, where the terrorist groups are rising and the nuclear force can’t make any influence on these groups.  Its also risky in terms of shipping.

Insurance n\method may be suggested to use in order to protect the organization from the shipping-related risk. Insurance is a popular technique for risk transfer in which only the potential financial consequences of a risk are transferred and not the responsibility for managing the risk. Insurance is a special form of transfer as a risk management technique that involves not only risk transfer but also pooling and risk reduction.

Frame (2003) indicates that with insurance the company pays a premium to protect itsself and the assets from unfortunate circumstances. (Frame, 2003).

Insurance as a risk management technique covers the following areas:

  • Direct property losses
  • Indirect property losses
  • Liability
  • Personnel-related losses (Frame, 2003)

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