But, data can only tell you so much. Gut instinct is often as
important as all the risk indicators one can identify—sometimes
even more so. Including intuition and experience in the
analytical process is extremely important; it is an integral
part of analyzing cross-border risk. An overreliance on numbers
and quantitative methodologies can lead to trouble, as they may
prevent an analyst from thinking in sufficiently broad terms to
adequately capture the true nature of risk. Ultimately, each
risk must pass our own "smell" test, based on our own inherent
experience, knowledge, and biases, because country risk analysis
cannot be a purely objective undertaking.
In considering which approach to country risk management may
be best for your organization, bear in mind the following basic
Politics Can Defy Logic
The political process is generally not logical, so applying
logic to the creation of a country risk management tool does not
make much sense.
Know Your Data Sources
Data may be obtained from any number of sources, but it is
important to be able to trust the information sources being
used. Where did the source you may select obtain its
information? Too often, external information providers or
consultants may not reveal where or how they received their
information, which may raise questions about its validity and
Question Official Statistics
Analysts tend to overrely on statistics generated by
governments or multilateral organizations. While these are
important sources of information to include in the analytical
process, it should be remembered that governments often
manipulate statistics for political purposes and that
international organizations often rely on such information to
produce their own analysis and projections.
Benefit from the Power of Observation
There is no better way to arrive at a conclusion about the
nature of country risk than to see it for yourself. If you have
the opportunity to visit the country and/or project site, it is
often the best means of arriving at a conclusion about the
nature of the risks associated with a given transaction. One's
own experience and interpretive abilities add a great deal of
legitimacy to the analytical process.
Qualitative Risk Assessment Can Ultimately Undo All
An overreliance on quantitative measures can be dangerous.
Adding texture to analyses by refusing to categorize them as
either black or white, or good or bad, can be the single most
effective addition to the analytical process. Human behavior (an
unpredictable variable) can only be assessed through the
incorporation of qualitative measurement.
Applying the Concept to the Euro Crisis
Country risk management is all about casting aside long-held
assumptions and applying insight and foresight to imagine what a
country and the world will look like in the future. Consider the
question of the Euro Crisis. Logic tells us that continuing to
throw good money down what appears to be a black hole may not
make much sense, yet the Eurocrats continue to do just that.
Rather than focusing on creating and implementing policies that
will generate long-term growth, policymakers are stubbornly
continuing down a path that has proven to be unsuccessful and
will likely continue to be so.
If we look forward 3 to 5 years to imagine what Europe will
look like if the same policies are pursued, what can we expect?
More than likely, we can expect a prolonged crisis, with
heightened unemployment, expanding budget deficits, greater
uncertainty, and even less confidence about what comes next.
Incorporating some of the concepts noted above, this implies a
greater likelihood of social tension, economic hardship, and
rising political risk. We don't need confirmation of continually
declining gross domestic product figures and rising unemployment
to tell us that the business climate may suffer for years to
come. Common sense tells us that.
Putting the pieces of the puzzle together, it is not
difficult to come to the conclusion that the business climate
will continue to suffer in Europe for many years. This, in turn,
has profound implications for countries that trade and invest in
and with Europe. Many developing countries have paid a high
price for the European imbroglio but have few resources or
options with which to counter it. This implies a distressed
trade and investment climate for much of the world for as a long
as the Euro Crisis continues.
To manage risk in this environment, risk managers, strategic
planners, and senior management in corporations throughout the
world must not only think outside the box, they must refold the
box into a pyramid, turn it upside down, and look at the world
in a whole new way. Managing country risk in this kind of
environment requires a range of skills that few companies have.
So, companies that have muddled along in a unidimensional manner
attempting to address risk are now forced adopt a
multidimensional approach to managing cross-border risk. Some
will make the transition successfully; others will not.
In our debt- and conflict-ridden world, with increasing forms
of risk from unexpected places, country risk can only continue
to rise in the near- and medium-term. The ability to look at the
present and future with an open, creative, and foresightful mind
is essential. If your company is not up to the task, there is a
good chance future profitability will suffer. The best advice is
to modify your corporate risk management policies now to
anticipate and account for future challenges to growth and