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What do Google, Coke, China and Katrina have in common?

Posted by lowellyarusso on March 25, 2010

So, Google is pulling out of China because of government censorship of internet usage and alleged support of efforts to hack user accounts. Observers believe that Google may have a very difficult time re-entering this market as a result. Coke has been prohibited from entering a joint venture. The reason for the ruling is, in essence, that Coke is too big. Unrelated? Unimportant? I think not.
One of the underlying risks in doing business with China is the role of the Central Government in the economy. Both of these examples highlight the concern. Everyone knows about the issue (or at least they did fifteen years ago). However, like so many other risks, there is a tendency to assume that, because the risk has not reared its ugly head recently, it must not longer be an issue.
Take Hurricane Katrina as an example. “Everyone” knew for many years that there is an inherent risk associated with having a major port on the Gulf of Mexico and that that risk was increased when the port is largely below sea level. So why did Katrina have such an impact? Of course, the size of the storm was one factor. More importantly, the human tendency to assume that yesterday is a good predictor of tomorrow almost certainly gave everyone a false sense of security.
Returning to Google, Coke and China, anyone with interests in China should see that these are the equivalent of New Orleans’ prior close encounters with large storms. For many years, the city dodged the bullet. Complacency set in. Risks were not adequately evaluated nor were mitigation strategies seriously debated, much less implemented. When the inevitable occurred, it was too late for anything but the finger pointing.
If your organization is (or will soon be) doing business in China, it is critical that you not limit your risk assessment to the obvious. Everyone knows about things like lead point on toys, poison in the pet food, and so on. These, and many other, supplier risks pop up frequently enough that it is hard to overlook them. What about all the other areas of risk that, while they have not been encountered lately, still need to be on the radar screen?
Whether we’re talking China, India, or any other emerging market, is your organization seriously evaluating currency risk, political risk, social risk, and so on? Or has the lack of major blows in those areas led to a false sense of security? Ask the folks at Google and Coke if they seriously thought of the Chinese government as a source of risk two years ago. I bet they would say, “Why? Who has experienced that recently?” Don’t let the answer be, “You have!”


7 Responses to “What do Google, Coke, China and Katrina have in common?”

  1. Lowell good post on a relevant topic – i think one of the problems is that companies often get so infatuated by potential cost savings or untapped markets that we tend to minimize the associated risks of these geographies. and to your point about risk evaluation – risk is no longer contained within the four walls of an organization. globalization has added layers of complexity to risk management. the sooner companies realize that the better off they will be.

  2. Jan Husdal said

    Good thought. The “physical” risk a you mention are the ones that come to mind first, and are relatively easy to control…or actually not, as has been proven time and again in China. Political, social and cultural issues are far worse to predict. Politically unstable countries are in a way better to do business in since you know and expect there to be quite an element of uncertainty, and you can base your business plans on an unruly environment. Centrally controlled governments are far worse to predict.

    • lowellyarusso said

      That’s a really good point and I definitely agree. If I’m doing business in Somalia, I KNOW I can’t rely on a lot of the familiar legal / cultural / etc. safeguards. In China (and many other places), the lack of overt risk makes it easy to think “Business as usual” applies. And, with strong governmental control as you find in China, when a decision is reached, it is implemented without appeal.


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  3. […] I also recently commented on the risk posed by China’s central government and its ability and will… Who would have thought that we need to add that risk to the mix when looking at domestic suppliers?  Not sure that’s right?  I’m not wholly convinced either but…who’s to say.  Given the push for the government to take an ever bigger role in a seemingly endless list of industries (banking, hedge funds, automobiles, real estate, etc.) there is a real risk that your assumptions about the US economy need to be reevaluated.  Is this really a free market anymore?  Or, will we have to constantly be on the alert for the possibility that people seeking reelection will replace the rational man of classical economic theory? <p> […]

  4. […] by lowellyarusso on July 13, 2010 In an earlier blog (What do Google, Coke, China and Katrina Have in Common? 3/25/10), I emphasized that the typical Supply Chain risks are the tip of the iceberg when looking […]

  5. […] posts (Were You Ready For Eyjafjallajökull?, Do You Have a Uniform Problem In Your Supply Chain?,  Google, Coke, China and Katrina, etc.) I commented on risks in the supply base and larger business environment. Today, I want to […]

  6. […] an earlier blog (What do Google, Coke, China and Katrina Have in Common? 3/25/10), I emphasized that the typical Supply Chain risks are the tip of the iceberg when looking […]

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