11.3 Strategies to Mitigate Economic Risk

Before selecting a strategy to mitigate economic risk, companies need to thoroughly analyze both current and historical data related to the target market. There are many credible sources of information available for data collection; one of them is the Country Risk Quarterly, published by Export Development Canada (EDC). Country Risk Quarterly provides companies with risk ratings of more than 100 countries around the globe. With over 1,000 trade commissioners in over 160 countries worldwide, the EDC’s Trade Commissioner Services also supports companies by introducing them to valuable contacts in their market of interest. Trade commissioners can provide business managers with the target market’s current business environment as well as credit and business information about potential partners and customers. When collecting information on economic risk, the following factors need to be considered:

• market’s growth rate, gross domestic product (GDP)
• target market’s inflation and unemployment rate
• target market’s foreign currency reserve position
• target market’s duties and tariff rate applicable to their product

If the target market has local content laws, such as hiring locally and sourcing domestically, companies need to analyze if the local labour force is adequate. They must also determine if local suppliers can support the required demand, product quality, and specifications to stay competitive.

Foreign Financial Involvement and Building Relationships

Building relationships with financial intermediaries and getting them involved with the project can reduce the risk for organizations in the event of a threat from the local government. When financial intermediaries have a stake in the project, they will act as champions on behalf of the organization.

Developing Plans for Variety of Scenarios

When analysis of economic data is completed and associated economic risks with the target market are identified, organizations must develop plans and multiple scenarios for high-risk areas should those risk events occur. By being prepared and having contingency plans in place, organizations can take control of the situation quickly and efficiently.

Share the Risk

By developing partnerships with local businesses or individuals, organizations can share the financial risk as well as get access to local knowledge. Partners in target markets can offer better advice on responding to events as they happen.

Acquire Insurance

Insurance for certain economic risks is available through local export credit agencies such as EDC in Canada. The type of insurance and coverage will depend on the needs of the organization, the country where the organization is operating, and the target market where the organization is starting its new venture.