Risk Mitigation Planning When Doing Business Abroad

World-Wide Concepts, Inc. (World-Wide): Risk avoidance

Because World-Wide Concepts, Inc. is an internationally-based company with operations in a wide variety of sectors spanning across the developing as well as the developed world, it must proceed with caution when entering into business agreements. Business law, customs, and ethics can be extremely varied internationally and particularly in China, Russia, and India (where World-Wide has based some of its most critical operations), there must be discretion in terms of how the organization's contracts and other arrangements are framed to ensure it will continue to succeed in the future.

One risk of doing business abroad is that there are often different safety standards for products such as the pharmaceuticals and medical technology manufactured by World-Wide. In any contract, the roles, responsibilities, and identities of all of the involved parties should be clearly delineated, along with a timetable for the participants. For example, one notable failure to observe safety standards in an international agreement occurred when the Mattel Toy Company entered into an arrangement with a Chinese manufacturing company -- the Chinese company subsequently used a subcontractor which did not adhere to U.S. safety standards: a massive recall resulted as well as considerable damage to Mattel's reputation. "Mattel's recalls illustrate how difficult it is for a multinational company, despite its best efforts, to keep tabs on all sorts of suppliers around the globe" (Palmeri 2007). The experience of Mattel underlines the need to have contingent circumstances outlined in an agreement with a subcontractor, including the requirements for all input which goes into the creation of the company product. Not only must the subcontractor observe World-Wide standards; so must the third-party entities that manufacture the components used by the subcontractors.

Clear contracts with defined safety standards are also important to reduce product liability claims. Drugs and medical devices must have easy-to-read labels, clear instructions and warnings, and be subject to careful testing. Safety concerns about a drug can have a long-lasting impact upon a company's reputation. "The challenges associated with globalization can contribute to product failures and contamination incidents. The costs of recalls, litigation, falling stock prices, and damaged reputations can extend into the millions or even billions of dollars and can sometimes put a company out of business" ("Managing global product liability risks," 2014). Laws can vary from nation to nation: what is considered safe and ethical in one nation may not be the case abroad. Also, local red tape can be extremely difficult to navigate if the organization is unfamiliar with the language and culture. For a medical organization, the challenges can be particularly difficult: "life sciences companies that want to conduct clinical trials in various countries must produce insurance certificates required by local ethics committees. Failure to produce such certificates -- often required to be issued in local languages by locally admitted insurers -- in a timely manner can lead to delays in trials and other operational challenges" ("Managing global product liability risks," 2014).

Having insurance is an essential component of doing business abroad to avoid the risk of lawsuits in general. "Knowing the quirks and nuances of global business insurance is crucial to having adequate coverage" (Loman 2010). Certain nations require businesses only to have local insurance, including China. Liability and property damage policies "do not provide coverage outside of the U.S. and Canada," thus requiring additional insurance (Loman 2010). To further guard against liability concerns, "businesses should be ready to act in the event of a product failure or contamination event. A crisis plan should clearly define roles and processes governing all aspects of a recall. This should include communications -- via multiple channels -- with customers, regulators, employees, suppliers, and news media. Businesses also should be prepared to trace products and components throughout their supply chain, be ready to execute a recall as necessary, and be able to account for all related costs for claims purposes" ("Managing global product liability risks," 2014). Product liability risk and assessment should take place before becoming involved in a country. The legal team of World-Wide should review "local laws, regulations, and customs in the specific country, helping the business stay compliant" ("Managing global product liability risks," 2014).

Intellectual property is another critical concern for multinationals, given the high risk of counterfeiting. "Counterfeit and substandard drugs are an international problem contributing to illness, death, toxicity, and drug resistance. A counterfeit drug is a compound that is not made by an authorized manufacturer but is presented to the consumer as if it were" (Green 2016). In some areas of the developing world, a consumer's risk of purchasing a substandard counterfeit drug may be as high as 30% (Green 2016). Counterfeits can impinge upon the brand's reputation as well as threaten the organization's profitability. "Innovation is important to economic growth and U.S. competitiveness in the global marketplace, and intellectual property protections provide the ability for society to prosper from innovation. Especially important in terms of innovation in healthcare are the pharmaceutical and biopharmaceutical industries" (Blackstone, Fuhr, & Pociask 2014). Raising consumer awareness through publicizing the risk of counterfeit drugs, including difficult-to-replicate branding on packages and in the design of drugs and medical devices is needed to reduce the risk of counterfeiting. Given that patients are often tempted to make use of counterfeit drugs to save money it is also important to keep in mind the price point of the likely target market.