• Matthew Grandage

Country risk - it's no laughing matter

Updated: Sep 15, 2020

Three questions and a pig

When assessing a country as a potential export market, we ask three questions: 1) What are the benefits of this opportunity? 2) What are the costs? 3) What are the risks?

And what might a pig have to do with any of this? Read on and you’ll see.

Assessing an opportunity’s benefits involves working out the size of the market for your product, how fast it’s growing, and possible price points. Also, you’ll consider secondary operational benefits such as extended product life or improved seasonal demand, and include estimates of their value too.

The costs of market entry will involve research, operational infrastructure, marketing, shipping, product compliance, taxes and duties, and possibly training, travel, and more.

So far so good. Add up the benefits, subtract the costs, and, if the result is positive, go for it – right?

Of course not. And this is because of that third factor: risk. There is a chance that assessment of either the benefits or the costs (or both) will turn out to be wrong, and that this will change the final result – maybe even from a profit to a serious loss. Or put it this way: just when you’re carefully weighing up your costs and benefits, risk is the guy who may have already sabotaged the scales – or could kick them right over at any moment!

Some of the risk of miscalculation can be reduced by paying more attention to the first two questions (What are the benefits? What are the costs?).

Commissioning quality market research should yield more accurate information about the potential benefits than, say, reading a newspaper article, or doing your own Google search. And talking with export specialists will help you get an accurate picture of your costs, and how to minimise them, so as to maximise your profit.

Other risks, however, will be outside of your control, though they are no less important.

Country risk

Risks outside your control – how known are your “unknowns”?

How risky will it be to do business in/with a country? The answer is: it’s not a simple question. That’s because there are many kinds of risk, and they are not all related.

Let’s first choose a few countries, the UEA, Nigeria and China, say. Now let’s look at this list of risk types, each of which includes a couple of examples:

  • Environmental (e.g. natural disaster, pollution)

  • Judicial (e.g. weak IP law, non-impartial courts)

  • Regulatory (e.g. protectionism, compliance)

  • Political stability (e.g. policy flips, elections)

  • Infrastructure-related (e.g. transport issue, limited internet)

  • Personnel-related (e.g. ease of hiring, retention)

  • Macro-economic (e.g. growth, inflation)

  • Ethical (e.g. corruption, copycat culture)

  • Banking-related (e.g. bureaucracy, credit card acceptance)

  • Government (e.g. ability to control, desire to intervene)

  • Customer-related (e.g. social media use, fickleness)

  • Cultural-linguistic (e.g. mis-translations, offence)

Now, of your countries, which is the most risky? Or, to be more specific, where are your estimates of benefit and cost most at risk of disruption?

Look out, Peppa!

This is where Peppa Pig makes an entrance. Peppa is a product of course, and a very successful British export too, from the creative industries sector. She’s worth a fortune globally.

Peppa is very easy to copy, and so at serious risk of IP theft. Which country will protect her? Is there a “copying is OK” culture there?

Will it be easy to recruit and retain suitable Peppa-marketing staff in that country? Is Peppa Pig a luxury, whose customers will ditch her when money is tight?

Will profits from licensees be easy to repatriate, or will they get stuck in domestic (piggy) banks?

Is Peppa open to cultural misinterpretation? Are there parts of the country that won’t accept her? (NB. Muslim populations: Nigeria ~50%, China 2-4%, UAE 76%).

Is Peppa likely to go viral, and meet new friends through social media? Could virality be a risk too?

Finally, could she end up on a government blacklist? In fact that’s exactly what happened in China on a couple of occasions, most recently on 30th April 2018, because she has been deemed “subversive” by the authorities. In the previous few days all Peppa-related videos and discussions were from the DouYin (short video sharing) website, then the #PeppaPig hashtag disappeared, and by the 30th a search yielded no results at all. At the same time, media giant Sina Weibo has begun widely promoted a home-grown alternative (“Little Pig Dodo”) – a suspiciously neat bit of timing.

OK, so your product may be neither pink, porcine, nor playful. You may be manufacturing pepper pots instead (or prop shafts, or peristaltic pumps for that matter), but you can still use the same grid of risks, or a similar one, to review the possible risks, and decide which might need further consideration. Do it yourself or, even better, ask us to help, so that you get an internationally experienced, independent view. But whatever you do, don’t neglect to assess your country risks. They’re no laughing matter.

[I originally wrote this for Chamber International, and it's reproduced here with their permission, and with minor edits. It first appeared in their blog on 18 May 2018]

10 May 2018

#risk #strategy #export