6.2 Discussion- Country Risk
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Module 6 Country Risk
Discussion
The paper in 6.1 Readings
discusses country risk. Multi-national firms need to consider unique issues within each country in which they operate. Think about the industry in which you are employed and your employer. Select a country and discuss two risks that would need to be considered for the country you selected. Be sure to apply the source, category, et cetera, of the risk consistent with what you studied in Module 4.
Note: You must choose a different country than your peers. Review their posts before selecting yours.
Your initial post is due by
Day 4,
and you must respond to at least two of your classmates and to all of the professor's comments on your post by Day 7
. Review the discussion rubric for detailed grading criteria.
This activity supports Module Objective 3 and Learning Outcomes 1 & 2.
Search entries or author Filter replies by unread Reply Reply to 6.2 Discussion: Country Risk
Collapse Subdiscussion Eric Holzbierlein
Eric Holzbierlein Nov 21, 2022 Nov 21 at 10:51am United States Air Force Strategic and Operational risks in Germany
For the last six-plus years I have lived outside of the United States at three different Air Force Bases in England, South Korea, and now Germany. Here in Germany, I work at Ramstein Air Base, which is the headquarters for the US Air Forces (USAF) European and African command. The military community here near Ramstein, commonly referred to as the Kaiserslautern Military Community (KMC) consists of 54k Americans on active duty, their families, and civilian personnel. This makes it the largest community of Americans outside of the US. The size
of a community such as the KMC has a tremendous impact on the Air Force’s ability to operate outside of US soil. However, overseas American military bases are also subject to political shifts.
Not only can politics differ inside the US between republicans and democrats or what have you, but also political climates in host countries.
Strategic International Risk
This brings up my first risk, which would be a change in the political support of a host nation. This could be categorized as a strategic/ strategic international as defined by (Segal, 2011) as an unexpected change in the business environment of foreign countries in which the company operates, such as unexpected changes in the government’s stability, or attitude toward foreign companies. Currently, German and US officials see the military partnership as both constructive and necessary, especially with the conflict to the east in Ukraine. As NATO members, both allies
are aware of the advantage that having a large American military base can have in the military operations of the host country. In 2021 for example, Germany played host to the largest human airlift in history, Operation Allies Refuge, when over 28k Afghan evacuees arrived at Ramstein Air Base in August 2021. This operation was only possible with the allied support of many countries, but German cooperation was the most significant. With the overall dissatisfaction of the 20-year war in Afghanistan, the ability to deliver 28k evacuees to safety was in the slightest a
win that America needed. In the future, it is wished that such an evacuation would not be necessary, however, with war looming in the east, the USAF proved its ability to generate the sorties necessary to move a large number of people and equipment. German government officials
and news outlets also celebrated the airlift and their part in bringing people to safety. However, if
tensions between Germany and the US were to take a turn for the worse because of some unforeseen circumstances, operations like this would very likely be impossible.
Operational Litigation
Another possible risk for USAF in Germany would be litigation that could deem it unable to operate in Germany or other European countries. Such litigation at present time does not seem probable, however, some have argued that the presence of US forces on European soil has escalated political unrest among adversaries. Seeing the increase in range and size of American foreign operations as a threat to national security. This is the rhetoric that we have heard from Moscow in defending the Russian invasion of Ukraine. In a best-case scenario, the current military unrest in Ukraine would end in a treaty between NATO, Ukraine, and Russia. It would not be unrealistic for Russian officials to attempt to remove American military forces from European soil as a part of a treaty. This scenario becomes even more probable if larger military escalation demands a larger compromise from all parties involved.
Reference
Segal, Sim.
Corporate Value of Enterprise Risk Management: The Next Step in Business Management
, John Wiley & Sons, Incorporated, 2011.
ProQuest Ebook Central
, http://ebookcentral.proquest.com/lib/erau/detail.action?docID=699453.Created from erau on 2022-11-21 15:44:21.
Reply Reply to Comment
Collapse Subdiscussion Nick Hechler
Nick Hechler Nov 21, 2022 Nov 21 at 11:09am Hi Eric,
I am writing this before even posting my initial post, but being from Germany this particularly spiked my interest. I think the second risk you mentioned is very important to monitor for all parties involved and might also tie into a strategic risk. I remember during the Trump presidency,
the majority of german's view of "Americans" shifted from being the "knight in shining armor" to the "bully next door" that is using Germany for its agenda with the resources stationed. People
were discussing heavily their disinterest in having major US bases in the country and "supporting" efforts with such now that the contribution to NATO and general support was in limbo.
With the democratic government coming back in, this shift quickly returned to the previous state,
as you mentioned with unquestionable support, but this shows how a political shift within the US
can have major implications to the riskiness of operations abroad.
Reply Reply to Comment
Collapse Subdiscussion Eric Holzbierlein
Eric Holzbierlein Saturday Nov 26 at 2:48am
Nick,
American Politics definitely play a huge role in the global landscape. What was interesting during Trump's presidency was that he actually wanted to close several European bases, one of them being Spangdalhem AB not far from Ramstein. Spangdalhem is a fighter base consisting of a squadron of F-16s which are now heavily valued in the area with tensions rising for NATO and its adversaries. The same scenario is often seen a lot in Japan where local citizens and government often criticize the US bases. However, every time North Korea fires a missile over Japan the rhetoric changes.
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Reply Reply to Comment Collapse Subdiscussion Xavier Barrett
Xavier Barrett Nov 21, 2022 Nov 21 at 8:36pm Eric, that was a great post and interesting points of views you covered. My company sort of deals
with similar risk and challenges associated with aiding NATO countries and their military/air force. These are risks that constantly have to be monitored and adjusted. It is interesting to see how organizations react to these needed changes in order to maintain their levels of production and service.
Reply Reply to Comment
Collapse Subdiscussion Eric Holzbierlein
Eric Holzbierlein Saturday Nov 26 at 2:51am
I see that you work with Raytheon, I'm sure that they deal with similar issues in global politics as they handle a lot of defense contracts.
Reply Reply to Comment Collapse Subdiscussion Maria Delgado
Maria Delgado Saturday Nov 26 at 10:52am Hi Eric,
Through my research, I found out that political uncertainty is considered a significant risk, and this risk is placed on the top list. The political climate in host countries can change so fast that it could drastically affect the operations of any corporation. Depending on the severity of the unexpected change in government stability, not only would the operations be affected, but also, this situation can put the life of personnel residing in that country at risk. I certainly believe that a risk tolerance would apply to multinational corporations before they enter the country and during their operations.
Thank you for all the interesting points you are bringing up to our attention. It is interesting to see the impact of two nations working together and how incredible things humans can achieve if we decide to commit to this. Many of us do not have experience in this field, and we can be oblivious to what is happening overseas.
Again, thank you,
Maria
Reply Reply to Comment Collapse Subdiscussion Marcel Melo
Marcel Melo Sunday Nov 27 at 6:11am Eric-
Great analysis on the risk associated with our armed forces in Germany! I just got back from a mandatory simulator trip to Illesheim, Germany last week for work. Political tensions in Germany used to be a key risk and played a significant role in highers decision making process. The US has a difficult job, maintaining order as an outsider in a foreign region. The ERM process can assist in the decision-making process by defining, quantifying, and consistently monitoring strategic and operational risks. A well-developed plan or strategy can be developed using this information for an immediate response when needed. I've seen troops in Germany both
surge and draw down based on the associated risk. I enjoyed reading your discussion this week!
Respectfully,
-Marcel Melo
Reply Reply to Comment Collapse Subdiscussion Aaron Pennington
Aaron Pennington Sunday Nov 27 at 1:34pm Eric,
I found your addition to this week's discussion interesting as someone was in the Air Force for 7 years. You mentioned how Germany played host to the largest human airlift in history, Operation Allies Refuge, when over 28k Afghan evacuees arrived at Ramstein Air Base in August 2021. This was an operation in the military which required significant mitigation. Now that I am in the workforce I can find some similarities. Options for mitigation frequently occurs for an ERM committee to establish risk appetite without first calculating enterprise risk exposure
(Segal, 2011). For example, this entails skipping the ERM process phase of risk quantification and going straight to the ERM process step of risk decision making. This is not suggested. The ERM committee lacks knowledge of the enterprise risk exposure's potential size without its quantification (Segal, 2011). Resources
Segal, Sim. (2011). Corporate Value of Enterprise Risk Management : The Next Step in Business
Management
, John Wiley & Sons, Incorporated, 2011.
Reply Reply to Comment Collapse Subdiscussion Theodore Roper
Theodore Roper Sunday Nov 27 at 9:17pm
Eric,
Loved how you addressed the political support of a foreign country. I experienced this with Cole Engineering a few years back. The fact that Germany provided the security for us to enter and leave the base was awesome. They had this mentality of if a German can do it we will hire them to operate it. I know if a country didn't have our interest at heart the commute to and from the work site could be nearly impossible. Thanks again for your
discussion.
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Collapse Subdiscussion Xavier Barrett
Xavier Barrett Nov 21, 2022 Nov 21 at 8:31pm Raytheon Technologies Aerospace and Defense Company Subsidy Pratt & Whitney Strategic and Operational Risks in Poland
For the aviation and defense industry, there is always high levels of risk associated with information, material, weapons, supplies, etc that must be managed and mitigated in order to maintain a safe and productive level of service and commitment. Any organization that has international locations must deal with an extra layer of risk from the local level. With the unfortunate war going on in Ukraine, there's a strategic and operational risk associated with Pratt & Whitney of Raytheon Technologies operating right next door with a location in Jasionka, Poland.
The strategic risk
associated with having operation so close to conflict would be a major shift in
what level of work would continue to be completed at that location due to the conflict nearby. Pratt and Whitney provides services to both the commercial and military segment. Serving over 23 air forces around the world. Parts and equipment are constantly transported among the different subsidies and locations under the Raytheon Technologies umbrella, taking into account what can be serviced on completed in reasonable time at different locations. Safety risk would obviously be prioritized at the Poland location along with concerns addressed by the government and other air forces around the world that depend on work being produced out of that location.
The operational risk includes the well being and confidence level of the workers at the Poland location to continue production at the expected/needed level even with the operational changes that may come from adjustments made after assessing the strategic risk. The basic safety level someone may feel in their own country may be greatly different than the safety level someone feels in another country. Any changes Poland decides to make in regards to the war next door in Ukraine will have an effect on both the strategic and operational risk of Pratt & Whitney in that country. The chances of constant changes needed to maintain productive operation in Poland will
have to be considered greatly and communicated effectively.
Reference
Segal, S. (2011).
Corporate value of enterprise risk management : The next step in business management
. John Wiley & Sons, Incorporated.
Reply Reply to Comment
Collapse Subdiscussion Nikki Grodus
Nikki Grodus Nov 22, 2022 Nov 22 at 2:08pm Xavier,
The operational risk of people's actual and perceived safety is an excellent point of discussion. Much of what we used to talk about when I worked at UPS was having a routine and having a clear mind before going into the day's work. Work at UPS is fast and can present many opportunities for injury. As we roll into the peak holiday season, drivers in some areas will be tackling this with packed trucks navigating snowy and icy roads. Having the right mindset is critical to prevent distraction. When I think about asking people to work in an unfamiliar country, it introduces a change in routines, which can lead to mistakes. Add to it the massive concern of a nearby war and the unrest locally that ebbs over to Poland, and I'm sure the effects would be significant. Whether the employees are visiting from another country for work, or even
Polish workers themselves, the war and threat of change would be a daunting black cloud over safety.
Reply Reply to Comment
Collapse Subdiscussion Xavier Barrett
Xavier Barrett Nov 22, 2022 Nov 22 at 9:08pm
Yes Nikki you are absolutely right. Different risks are heightened through different seasons so new measures have to be put in place. It does help to stay ahead of the curve and have preventive measures in place to prevent the need for massive "reaction".
Reply Reply to Comment
Collapse Subdiscussion Dallas Anderson
Dallas Anderson Nov 22, 2022 Nov 22 at 9:50pm Hi Xavier,
Thank you for sharing, there definitely is some risk for Raytheon's operations in Poland being so close to Ukraine. This is not the 1st time Russia has come after Ukraine, in 2014 Russia took over Crimea. I also think that Poland is in a much better place in regards to security as they are apart of NATO. As it turns out Raytheon's Javelin and Stinger missiles have been a major aid in Ukraine's defense again Russia. Raytheon CEO says they are going to be focusing on hyper-
sonic missiles technology next.
Dallas
References
Ignatius , A. (2022, March 25). Raytheon CEO Gregory Hayes: How Ukraine has highlighted gaps in US Defense Technologies
. Harvard Business Review. Retrieved November 22, 2022, from https://hbr.org/2022/03/raytheon-ceo-gregory-hayes-how-ukraine-has-highlighted-gaps-in-
us-defense-technologies
Reply Reply to Comment Collapse Subdiscussion Thomas Vining
Thomas Vining Friday Nov 25 at 8:03am Hello Xavier,
The discussed strategic and operational risks are strong points, primarily regarding the unfortunate war in Ukraine. No matter important your work is, nothing should be prioritized over
your safety. Most people feel more secure in their country than when in other countries. However, if a company needs to expand its operations to other countries, safety should be guaranteed for all workers. The more secure the working environment, the more productive the workers will be. Change in security concerns significantly impacts a company's operational and strategic risks in a given country.
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Collapse Subdiscussion Eric Holzbierlein
Eric Holzbierlein Saturday Nov 26 at 2:56am Xavier,
I enjoyed this post as we discuss similar circumstances in the defense industry. I'm sure that Raytheon is looking to capitalize on the current situation to continue to expand operations globally. Just as military departments are looking for ways to increase production and logistics in
eastern Europe, Raytheon has an important role as you mentioned in supplying a large number of
customers both domestically and internationally. I'm separating next year so maybe I need to reach out to you and see what the options with Raytheon are! Thanks, Xavier.
-Eric
Reply Reply to Comment Collapse Subdiscussion Nick Hechler
Nick Hechler Saturday Nov 26 at 6:01pm As you mentioned Xavier, the stated risks are ever so important in today's age as it was a couple of decades ago. I liked that your country's risk not only included the risks associated with Poland, but also it's proximity and location towards Ukraine, the threats arising from that, as well
as combining that with the Political implications of Poland's past and possible expansion plans by Russia to continue their endless endeavors.
I think often when analyzing countries abroad, it is easily overlooked that situations surrounding the country must be included in the evaluation as well. The geographical location in relation to other countries, governments, and world events have serious implications and can easily jump borders and show effects there as well.
Risks are also not always clear cut but as you mentioned, they may have to do with worker emotions and the feeling of being safe or unsafe. This can be very difficult for management to grasp, especially if headquarters are abroad and far away from the conflict.
Reply Reply to Comment
Collapse Subdiscussion Aaron Pennington
Aaron Pennington Sunday Nov 27 at 1:44pm
Xavier,
The points you made this week make me more interested in Raytheon as that is where I currently work. You made some comments with the war going on in Ukraine, there's a strategic and operational risk associated with Raytheon Technologies operating in Poland. This brings to mind the managing risk return in the example Raytheon operating overseas. The risk-return balance for parts of the business below the enterprise level, such
as business segments, can be managed using risk limits (Segal, 2011). For example, an attribution of the downside standard deviation measure for a particular business sector can be produced as a result of the process of determining risk boundaries. A comprehensive measurement of the amount of downside risk that the industry sector produces (Segal, 2011). For instance, when taking actions to better manage the risk-
return profile of the business segment, management examines this in connection to the returns produced by the business segment. For instance, the business segment may be expected to create better returns if the amount of risk is deemed to be too high. Alternatively, a choice may be taken to reduce the degree of risk generated by the business segment, and risk limits may be defined to allow this reduction (Segal, 2011).
References
Segal, S. (2011).
Corporate value of enterprise risk management : The next step in business management
. John Wiley & Sons, Incorporated.
Reply Reply to Comment Collapse Subdiscussion Dallas Anderson
Dallas Anderson Nov 21, 2022 Nov 21 at 10:21pm Hi Everyone,
I am going to be writing about Boeing's Zhoushan completion/delivery center in China
.
Risk #1- Industrial Espionage
Segal (2011) writes that this risk is in the operational category, subcategory technology, risk division data security. The federal bureau of investigation says that China's intelligence activies are the greatest long term threat to our information. Broadly China's industrial espionage efforts have penetrated many different sectors of American companies data from manufacturing, military, political, agriculture etc. For Boeing and at the Zhoushan delivery center it could be having Chinese government agents working for the company and sending data back to government or trying to copy the manufacturing/operation process being used there. Or the attacks could be all done remotely, their biggest know data breach was on Equifax, Marriot and Anthem. Although there are defenses that companies can use that may stop some of the infiltration I believe that it is a known risk of doing business in China. Alot of companies are willing to take that chance because the market is so large there and the labor costs are so much less. (Bateman, 2022)
Risk #2 COVID Policies
Segal (2011) writes that this risk is in the strategic category, subcategory is legislation or regulation, risk division local laws. China has implemented extremally strict zero tolerance covid
policies. Some of the techniques in those polices used are mass testing, border restrictions, extensive quarantines and snap lockdowns of entire cities that can last for months. While regulations like these are in place trying to get any sort of predicable schedule in place is impossible. This impacts the delivery center itself, the workers who live in surrounding areas, the
planes coming from the US and airline customers who are coming in to take delivery. There was no way to predict that China was going to implement these strict covid regulations when the delivery center was first built but now it is a reality that Boeing has to deal with. (Gan, 2022)
Dallas
References
Bateman, J. (2022, April 25). U.S.-China technological "decoupling": A strategy and policy framework
. Carnegie Endowment for International Peace. Retrieved November 21, 2022, from https://carnegieendowment.org/2022/04/25/u.s.-china-technological-decoupling-strategy-and-
policy-framework-pub-86897 Links to an external site.
Segal, S. (2011). Corporate value of enterprise risk management: The next step in Business Management
. J. Wiley & Sons.
Gan, N. (2022, November 21). China reports first covid-19 deaths in nearly 6 months as cases spike
. CNN. Retrieved November 21, 2022, from https://www.cnn.com/2022/11/21/china/china-
covid-first-deaths-six-months-intl-hnk
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Collapse Subdiscussion Xavier Barrett
Xavier Barrett Nov 22, 2022 Nov 22 at 9:15pm Dallas, those are good points, especially dealing with China. China has always found a way to
make its own "version" of big and successful companies/products produced in other parts of the world. China has a priority for its homeland gains vs those of outside competitors that come to do business in China. I do believe the risks you provided are strong risks every outside company that does business in China talks about. Their COVID policy is very strict and any decision they make for a certain location would have a massive effect on operation and production in that area.
Reply Reply to Comment Collapse Subdiscussion Michele Paetznick
Michele Paetznick Nov 23, 2022 Nov 23 at 9:08pm Dallas,
You bring up some really great points. Especially as it relates to the strict Covid policies in China. This black swan event, that in no was was predictable, has devastated and disrupted many areas of our industry. For us it has been with the supply of parts out of China. However, I can see how this has impacted your business from various perspectives. Thank you for sharing.
Reply Reply to Comment Collapse Subdiscussion Eric Holzbierlein
Eric Holzbierlein Saturday Nov 26 at 3:02am
Dallas,
I really think that your first risk, industrial espionage is one of the most important talking points for major companies/industries going forward. I remember reading the story about Boeing being attacked by Chinese intelligence during the production of the F-35. It was stated that a lot of valuable controlled information was lost during this time. This is a substantial risk because Boeing supplies commercial and military aircraft to a large number of international customers, making their information a high level of interest for competitors. Thanks, Dallas.
-Eric
Reply Reply to Comment Collapse Subdiscussion Nick Hechler
Nick Hechler Nov 22, 2022 Nov 22 at 11:57am The company I work for, provides pilot services, including instructional services to aircraft owners and operators. Included in a lucrative management package, the company accepts leasebacks, where the downtime of airplanes is used for flight training purposes. Owners love this idea as the airplane is creating revenue when not being used. It, therefore, becomes an investment into a money-making asset.
In this fictional scenario, we will take a look at risks associated with the plan to expand across the Atlantic into Switzerland and the implications the company would have to face in moving abroad and opening operations globally.
Legislative Risk
One major risk of moving operations into a new country is the legality of the operation. With plenty of experience in the US, there is enough market research out there that considering prices of fuel, labor costs and administrative fees, the model of providing pilot services at an affordable cost for small airplane owners is a lucrative business, and is an operation supported by the regulations set forth by lawmakers. With little to no experience, the risk of being unaware of regulations that would impact the operation is high and the probability of such oversight could show costly is well above what one would want to accept. As certification standards, requirements and administrative processes vary widely in the aviation industry, not having an aviation consultant that is familiar with country-specific requirements is inadvisable. Legal fees could quickly cut down the budget for expansion if not careful, especially after large investments
have been made that are unrecoverable. Additionally, management structures that require certain personnel with certain experience may be required for such operations. It would be important, therefore, to undergo detailed research on countries' specific regulatory requirements for the
operation intended, as well as invest in legal consult while drawing up the business expansion plan.
Even after implementing legal operations, since the General Aviation community does not receive the same support as its US counterpart, and with a move to becoming more environmentally friendly, shifts in legal interpretation or the implementation of new laws may make operations difficult down the road. The US is known to have a strong lobby to support and ensure general aviation's liberties before congress, however that is not necessarily true going abroad.
Operational Risk
Another very important factor that primarily goes into the finance and Human Resource subcategory is the question of market demand for such an operation. The US is known globally as being open to General Aviation and owning a small plane is by far not as unusual in the US as
one may think. In Switzerland and Europe, this cultural trait is not as pronounced as in the United States. Operating fees for aircraft are a lot higher with the implementation of landing fees
and most airports (including smaller general aviation airports), higher fuel costs, and sparse availability of aircraft services. Paired with potentially lower demand for pilot services, this may increase expenses significantly to a point where profit margins are unsustainable for the operation.
Reply Reply to Comment
Collapse Subdiscussion Xavier Barrett
Xavier Barrett Nov 22, 2022 Nov 22 at 9:21pm Nick, those were very interesting risk points you covered in expanding operations globally. The legalities of operation on a local level definitely have to be taken into consideration with the market of aviation being different all over the world. I believe those risks could be best discussed
and solved with help from local aviation experts in Switzerland. It would help the company make
a better strategic decision based on the information and insight provided.
Reply Reply to Comment Collapse Subdiscussion Dallas Anderson
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Dallas Anderson Nov 22, 2022 Nov 22 at 10:06pm Hi Nick,
Thank you for sharing, that is a very cool company concept! I think another operational risk to the company is the safety record for general aviation. Even with general aviation being more widespread in America the safety record is not that good, that is because there is alot more freedom than commercial aviation. Every little aspect of commercial aviation is regulated which drives the safety record. With general aviation there is far less regulation which leads to the safety record it has, less safe then driving a car. I'm sure your company has all the right insurance
policies and waivers so its not an issue. (Jurgens, 2022)
Dallas
References
Jurgens, P. (2022, February 17). Is general aviation safe?
Flight Training Central. Retrieved November 22, 2022, from https://flighttrainingcentral.com/2022/02/is-it-safe/
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Collapse Subdiscussion Nick Hechler
Nick Hechler Saturday Nov 26 at 6:04pm
Great point Dallas, I agree and this is one point we are faced with every day. Smaller, lighter, less capable and less equipped airplanes than the commercial counterparts bring with them a great deal of challenges. Even our fleet might not be suitable for higher elevation terrain found in Switzerland or other places, so a lot more goes into these decisions.
Reply Reply to Comment
Collapse Subdiscussion Theodore Roper
Theodore Roper Nov 22, 2022 Nov 22 at 11:10pm Nick,
Thanks for the discussion. That's a lot to to think about when reading about the legalities of creating an airport. You're right to mention that fuel may be expensive. Not to mention certain types of fuel may be illegal to use in aircraft. I know that in the Navy JP-8 was considered illegal
or unauthorized to use on US soil or aircraft carriers due to its flashpoint. So if we had to use it for emergency purposes we had to dump the fuel or dispose of it before reaching the aircraft carrier. Talk about a waist of currency. Thanks for the sir.
Reply Reply to Comment
Collapse Subdiscussion Nick Hechler
Nick Hechler Saturday Nov 26 at 6:05pm
I did not know that, that"s interesting! I know the European Union is thinking of banning Avgas, which isn't what our fleet uses but could have additional serious implications on general aviation as a whole in member countries.
Reply Reply to Comment Collapse Subdiscussion Cody Henderson
Cody Henderson Sunday Nov 27 at 12:48pm
Nick,
It seems with a lot of our scenarios that cost is a major risk. Knowing the prices of fuel, labor, administrative, and other things is good because it helps the company plan. Another thing that you mentioned was just knowing regulations, if mistakes are made in this regard it can also be detrimental to the company. If the company gets fined for lack of knowledge or not meeting standards this becomes not a good look on the company either.
Reply Reply to Comment Collapse Subdiscussion Nikki Grodus
Nikki Grodus Nov 22, 2022 Nov 22 at 3:22pm General Motors and Risks of Selling Electric Vehicles in Iceland
Iceland is aggressively moving towards an electric vehicle future to reduce Greenhouse Gas (GHG) emissions (Dillman et al., 2021). By electrifying their transportation fleet, they can move towards this goal. In an attempt to provide electric vehicles across GM's complete portfolio, it is fitting to consider two risks of operating in Iceland.
First, we must consider the risk of infrastructure overload, which might be financial for the local power company, but is operational for GM. Icelandic people have high levels of per-capita vehicle ownership, and being able to charge these vehicles is taxing on a typical residential electric system. For example, a standard level 2 charger for a home is 40 amps. Many homes have 100-200 amp services, which may limit how many vehicles can charge simultaneously. Consider a typical neighborhood with two cars per household drawing 40 amps each overnight. Add to that a civil fleet of vehicles that charge overnight, and the grid could easily be overloaded. The risk is likely that the load demand will exceed the power grid's capacity. This would not only impact operations and sales but also cause a public outcry for a change in technology that does not require such a heavy amperage draw to charge an electric vehicle future. This could set operations back to the drawing board for demands in better self-charging technology while the power grid deals with infrastructure upgrades.
Financially, there is a risk of recession, with inflation reaching 9.9% in July 2022 (
Iceland / Economic Studies - Coface
, n.d.). This falls under the subcategory of economic impact and leads to the balancing production risk division. Although the war in Ukraine has not threatened Iceland's economy much due to its low volume of imports to Russia and Belarus, Iceland has not been immune to rising inflation as we come into a post-pandemic economy. Employees in Iceland will demand higher wages, making the cost per unit of electric vehicles higher. The upside is that Iceland's economy is heavily fed by tourism, which is picking back up. With a
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1200% spike in tourism between January and May this year (
Iceland / Economic Studies - Coface
, n.d.), the demand for electric vehicles to transport these tourists could grow exponentially. However, the availability of workers to support the EV infrastructure, such as charging stations, and increased electric service, may not be able to keep up with the spike in demands from tourism. This is an example of how this strategic risk can cause ripples of other risks that flow out into the economy of Iceland, like volcanic lava.
Dillman, K. J., Fazeli, R., Shafiei, E., Jónsson, J. Ö. G., Haraldsson, H. V., & Davíðsdóttir, B. (2021). Spatiotemporal analysis of the impact of electric vehicle integration on Reykjavik’s electrical system at the city and distribution system level.
Utilities Policy
,
68
, 101145. https://doi.org/10.1016/j.jup.2020.101145 Links to an external site.
Iceland / Economic Studies - Coface
. (n.d.). Www.coface.com. https://www.coface.com/Economic-Studies-and-Country-Risks/Iceland
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Collapse Subdiscussion Theodore Roper
Theodore Roper Nov 22, 2022 Nov 22 at 10:54pm Nikki,
I like how you mentioned the upside to having an increase in tourism. That would definitely help
the electric vehicle demand in Iceland. I also see the down side of not having enough workers combat the demand for electric vehicles. You will most certainly need charging stations for electric vehicles in multiple locations like work, home, hospitals, and possibly restaurants. All of which are good points. Thanks for the info!
Reply Reply to Comment Collapse Subdiscussion Michele Paetznick
Michele Paetznick Nov 23, 2022 Nov 23 at 9:23pm
Nikki,
I like how you bring up the risk of infrastructure overload and how that could impact the power grid. Especially in having a certain amount of vehicles charging overnight. The emergence of Green Technology has moved beyond concept and into reality. Issues such as this need to be taken into account, and publicized, so that growth is working within the set parameters of the risk
threshold and, in turn, within the parameters of what the system can support. Thank you for sharing this enlightening information about your company.
Reply Reply to Comment Collapse Subdiscussion Thomas Vining
Thomas Vining Friday Nov 25 at 8:03am Hello Nikki,
I like how you have explained the risk of infrastructure overload. Although the company is trying
hard to minimize Greenhouse Gas, the power grid limits its operation. To meet the increasing demand for electric vehicles due to the increase in the number of tourists in Iceland, the power grid should be upgraded to accommodate electric vehicles. If the power grid can be modified, more charging stations can be established in different locations, such as schools, hospitals, and other workplaces. Reply Reply to Comment Collapse Subdiscussion Ryan Seader
Ryan Seader Saturday Nov 26 at 11:47pm
Hi Nikki
I never really thought about Electric Vehicles in Iceland until I read you study. Alternative fuel vehicles already account for 11% of the country's vehicle fleet, implying that the electric car revolution is gathering steam. I think you have made a key point in this study that I find important is that the risk is the load demand as it will exceed the capacity of the power grid. This would have an impact not only on operations and sales,
but would also result in a public outcry for a change in technology that does not require such a high amperage draw to charge an electric vehicle in the future. This could force operations to restart in order to meet demands for better self-charging technology while the power grid undergoes infrastructure upgrades.
V/R
Ryan
Reply Reply to Comment Collapse Subdiscussion Maria Delgado
Maria Delgado Nov 22, 2022 Nov 22 at 7:43pm International Airport – Jose Joaquin de Olmedo in Guayaquil – Ecuador
I have selected the Aviation Industry as I work at Fort Lauderdale Hollywood International Airport. The Jose Joaquin Olmedo International Airport in Guayaquil - Ecuador, is small. Nevertheless, in the last few years and on several occasions, the Airport Council International (ACI) has recognized the airport with the award of Airport Service Quality. Jose Joaquin de Olmedo is under the category of two to five million enplaned passengers per year in the Latin America – Caribbean Region. (Davitt, 2022).
Strategic – External Relation
An airport, to be successful, needs to have a good relationship with all its internal and external stakeholders. Consequently, the airport needs to be opened and deal directly with many international stakeholders such as airlines, passengers, government authorities, media, consumers, agencies, regulators, and politicians. It is important to consider external relations as a
risk because poor external relations or a failure of this could damage the airport's reputation and lead to lower company value and revenue (Segal, 2011). The airport growth, capital improvement projects, and many airport improvement initiatives will depend on how upper management levels govern external relations. In addition, the airport can mitigate the likelihood of this risk with the implementation of an enterprise risk management plan and a business continuity plan.
Strategic – Legislative / Regulatory
The aviation industry is a versatile industry where changes in laws and regulations are a constant matter. Without any doubt, airport operations can be impacted by new regulations (Segal, 2011). To be successful, promote business, generate revenue, and maintain steady growth, the airport
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must comply with all governmental regulations. Since this is an international airport, operations will be subject to international laws and regulations. Therefore, the airport needs to understand and follow international regulatory organizations. In addition, the airport must follow mandates from international agencies such as International Civil Aviation Organization (ICAO). Lastly, the airport needs to consider the regulatory aspects of where these international companies operate to avoid penalties or sanctions. The organization can mitigate this risk if airport authorities are well informed and have a contingency plan for upcoming regulations.
References
Davitt, D. (2022, March 10). Customer service leadership’ – ACI reveals Airport Service Quality
award winners
. Retrieved from The Moodie Davitt Report Web site: https://www.moodiedavittreport.com/customer-service-leadership-aci-reveals-airport-service-
quality-award-winners/
Segal, S. (2011, March 8). Corporate Value of Enterprise Risk Management : The Next Step in Business Management
. Retrieved from Ebook Central Web site: https://ebookcentral.proquest.com/lib/erau/reader.action?docID=699453&ppg=1#
Reply Reply to Comment
Collapse Subdiscussion Sara Clouse
Sara Clouse Friday Nov 25 at 2:22pm Maria,
External relations are definitely a major concern for airports and I’m sure the risk has to be managed on every level. There are travel warnings for US passengers into Guatemala due to an increased risk of crime under the advisement “reconsider travel”. A few cities are under the advisement “do not travel”, the highest travel advisory level recommended by the US government. The issue of crime and impact on foreign travel recommendations are external factors beyond the control of Guatemalan airports- dealing with the fallout must be a considerable challenge. I agree that a solution to avoiding penalties and sanctions is to have well-informed senior management and a contingency plan for changes in regulations.
V/r,
Sara Clouse
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Reply Reply to Comment Collapse Subdiscussion Jose Perez Calderon
Jose Perez Calderon Sunday Nov 27 at 1:54pm
Maria,
Great points. Aviation is a complex industry filled with obstacles and challenges. It takes a lot of work and resources to stay up float in this industry. This sector is rapidly growing
in many countries throughout Latin America, keeping up with the demanding changes in this industry can be a challenge for these countries. The developed countries can easily adapt to change due to the abundant resources available to them. Building close international relations to share knowledge, and mitigate issues might be the best way to ensure success.
Reply Reply to Comment Collapse Subdiscussion Theodore Roper
Theodore Roper Nov 22, 2022 Nov 22 at 10:46pm Program Executive Office Simulation, Training, and Instrumentation (PEO STRI) Stryker
ATGM HOT Operational and Financial Risk in Panama.
In PEOSTRI our focus is to ensure the contractor meets the requirements of the Statement of Work (SOW). The SOW states that hardware and software must be manufactured on US soil for clearance purposes along with other extensive requirements. Since it states this, I will have to answer the risk from an imaginative standpoint. Before we go further, let me explain the Stryker Anti-Tank Guided Missile Hands-on Trainer. The ATGM HOT is designed to train soldiers to perform maintenance using tools and technology. The instructors test their skills, which will determine if they pass or fail the training session. Now back to our imagination, let’s imagine PEOSTRI accepts software from Panama. Panama doesn’t have a military presence since the US departed from Panama back in 1999. There are 2 risks involved in this scenario. First would be the Operational Risk and Second the Financial Risk.
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Operational Risks From an operational standpoint if PEOSTRI were to accept software against the SOW requirement. Since the stakeholders and generals of the Army wouldn’t accept going against the SOW it will require rewriting to meet the proper standards. We would risk having our software intercepted by enemy nations that aren’t allied with Panama or the US. Another risk is having to update the software from a location that isn’t remote the interference could cause significant downtime for soldiers to train. If hardware (bolts, lock-nuts, etc.) are in SAE format and the foreign country hypothetically speaking reads by metric this would require a major reconstruction or conversion of the product being built.
Financial Risks
If we look at this from a financial standpoint one of the major risks PEOSTRI will face is converting the currency of the maintenance trainer. Panama’s currency is the Panamanian Balboa. There may be a fluctuation in the currency exchange. The next issue you may face could be a lack of resources in that area. The lack of resources like the metal used for building the ATGM structure may be scarce causing a financial issue purchasing outside of that area. Another great issue to PEOSTRI building a Stryker ATGM would be labor unrest. Political issues of building a trainer to train soldiers on how to operate a weapon of mass destruction (for lack of a better word) could spring labor issues causing finances to drop. Second, if workers aren’t getting paid enough and aren’t allowed vacation or liberty time they may go on strike. Depending on the foreign country they may celebrate different holidays or religious events. November 3 for example is Panama’s Independence Day from Colombia. If PEOSTRI doesn’t acknowledge these events workers may get upset and go on strike. A strike may cause a serious dent in the finances of production in the organization. Therefore, PEOSTRI doesn’t look to foreign production of the Stryker ATGM HOT.
Reference:
Segal, S. (2011). Corporate value of enterprise risk management: The next step in business management. John Wiley & Sons, Incorporated.
Reply Reply to Comment
Collapse Subdiscussion John Barbachano
John Barbachano Sunday Nov 27 at 8:02pm
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Theodore,
Good selection of risks. That makes a lot of sense that there is a risk of not being able to acquire the need resources in areas outside of the designated area. US defense contractors seem to take a lot of risks by being contracted through the US DOD. They tend to have so many rules and regulations that limit their ability to do business with other nations that you'd think their decisions. I have also experience in my career the risks involved with doing business on celebrate foreign national holidays. At times we walk a thin line on when, how and why we decide to work when the foreign nations we are operating in determines when we should or should not.
Reply Reply to Comment Collapse Subdiscussion Ryan Seader
Ryan Seader Nov 23, 2022 Nov 23 at 8:02pm Greetings Class
A multinational firm must decide how to coordinate and streamline operations between its home country and its foreign operations. Decisions must be made about when and how to establish a local physical presence, as well as how to gain the support of local organizations such as labor unions and parts suppliers.
The EU legislation requires institutions to manage and mitigate operational risk, which is defined
as the risk of losses resulting from insufficient or failed internal processes, people, and systems, as well as external events. Operational risk, which is embedded in all banking products and activities, includes legal risks but excludes reputational risk. It has always existed in banking and
non-banking organizations, but its importance has grown due to the increased complexity and globalization of the financial system, as well as the recent occurrence of unprecedented extremely large losses. The EBA's publication of operational risk guidelines and RTS aims to promote and improve the effectiveness of operational risk management and supervision throughout the banking system. The EBA is responsible for ensuring the integrity, transparency, and orderly operation of financial markets. The EBA works to prevent the use of the financial system for money laundering and terrorist financing (ML/TF) as part of its mandate.
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Liquidity risk
The EBA is responsible for several liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) mandates arising from the Capital Requirements Regulation (CRR) and the LCR Delegated Regulation. The EBA's liquidity deliverables are primarily binding technical standards
(BTS) and reports. The EBA also examines how institutions and competent authorities have implemented the CRR and RTS provisions, focusing primarily on the LCR, using ongoing monitoring tools. Where guidance is required, the EBA provides it in a dedicated report that is updated on a regular basis. The NSFR will be subject to this review beginning in June 2021.
Credit risk
Credit risk is concerned with the development of BTS, Guidelines, and Reports for the calculation of capital requirements under the Standardized Approach and IRB Approach for credit risk and dilution risk in relation to all of an institution's business activities, excluding the trading book business. The goal is to ensure that provisions on credit risk adjustments, definition of default, permission to use Standardized/IRB approach, appropriateness of risk weights, or credit risk mitigation techniques are implemented consistently across the EU.
Market risk
Market risk is the risk of losses arising from movements in market prices. In prudential terms, it captures:
1.
the risk of losses related to instruments that are allocated to the trading book; and
2.
the risk of losses due to foreign exchange risk or commodity risk in the banking book items.
The Basel standards on market risk, the so called ‘FRTB’ (Fundamental Review of the Trading Book) framework, subdivides the market risk scope into five primary risk classes:
1.
equity risk;
2.
interest rate risk;
3.
credit spread risk;
4.
foreign exchange risk;
5.
commodity risk.
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Other prudential areas that relate to market risk are the following:
1.
Counter-party credit risk (CCR) aims to capture the potential loss in the event of default of a counter-party to a transaction before the settlement of the transaction’s cash flows. The CCR framework applies to derivatives and/or fair-valued security financing transactions (SFTs);
1.
Credit valuation adjustment (CVA) risk: aims to capture the risk of an adverse change of the credit spreads for the counter-party to a derivative transaction. The CVA framework applies to non-cleared over-the-counter (OTC) derivatives and/or fair-valued SFTs;
1.
Prudent valuation framework: aims to capture the uncertainty surrounding the valuation of fair valued instruments, especially those related to non-liquid market data inputs. Additional valuation adjustments resulting from the application of the prudent valuation framework are deducted from CET1.
Reference:
European Banking Authority.
(2022, May 2).
THE ROLE OF ENVIRONMENTAL RISKS IN THE PRUDENTIAL
Retrieved November 23, 2022, from FRAMEWORKhttps://www.eba.europa.eu/sites/default/documents/files/document_library/
Publications/Discussions/2022/Discussion%20paper%20on%20the%20role%20of
%20environmental%20risk%20in%20the%20prudential%20framework/1031947/Discussion
%20paper%20on%20role%20of%20ESG%20risks%20in%20prudential%20framework.pdf
V/R
Ryan
Reply Reply to Comment Collapse Subdiscussion Michele Paetznick
Michele Paetznick Nov 23, 2022 Nov 23 at 8:59pm
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HEICO Aerospace – Strategic and Financial Risks of Operating in Latin America
HEICO has been in business for over 65 years and is the world’s largest independent supplier of FAA-PMA approved parts for engines and components across every engine platform and ATA chapter. We currently hold over 11,000 FAA approvals and produce more than 500 new PMA parts each year. It goes without saying that with this, comes an immense amount of risk, especially when expanding into new territories. For the purpose of this assignment, I will discuss the Strategic and Financial Risks of operating in Latin America.
HEICO has several airline partners we work with in Latin America. Those airline use key third party partners like, MROs and buying consortiums, to manage the purchasing and use of our PMA parts on their aircraft during routine and heavy maintenance. These third parties are typically familiar to us, as we do business with them in the US; however, working with them in Latin America tends to be a little different and can present some challenges. For instance, the buyers utilize different buying platforms, the decision making with regards to approval of our parts is fragmented between the airline customer direct and the third party, and certification of parts coming into and out of the country varies slightly. This presents strategic challenges as it relates to our overall strategy of expanding our business with the customer direct, execution of the sales process as it is fragmented between two entities, and the governance of working within a country that has different certification procedures.
In addition to the strategic risks mentioned above, there are also financial risks of doing business in Latin America. As many countries and airlines are recovering from the substantial loss in business due to Covid, Latin American has been a little slower than most. This is because the governments of Latin America, across the board, denied their aviation industries financial support to manage through it (Wolfsteller, 2021). Three airlines in particular, Colombian flag carrier Avianca, Chile’s LATAM Airlines Group and Mexico’s Aeromexico, filed for Chapter 11
Bankruptcy in 2020 (Wolfsteller, 2021). All three are continuing to restructure (with Avianca being the first to complete all of its obligations) and they are working diligently to come out of this and return to normal. However, during this “restructuring” phase, all three airlines have become a credit risk. This in turn has made it very difficult to do business direct with these airlines, and even more difficult with the third parties mentioned above. Finances and liquidity were already a known risk in Latin American, and customers were previously being monitored carefully. However, with Covid, this has increased significantly and continues to be a topic of discussion when seeking to grow the business within the set parameters that the credit risk will allow.
Reference
Pilar Wolfsteller, 202, Latin American airlines facing long road to recovery, https://www.flightglobal.com/airlines/latin-american-airlines-facing-long-road-to-recovery/
146900.article Links to an external site.
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Collapse Subdiscussion Sara Clouse
Sara Clouse Friday Nov 25 at 1:57pm
Michele,
Certification procedure differences between countries must cause delays as well as increased workload to meet individual country requirements. It’s interesting that you bring up additional issues post-COVID. This is a good example of a risk compounding the existing risks of working with these airlines. The reference/link that you provided is very interesting, in part because the airline restructuring plans were approved by a US court instead of/ in addition to their country of origin. Another interesting point in the article is that domestic recovery is expected in 2023 with Latin American markets trailing
with an estimated recovery in late 2023-2024. Thank you for the information and taking the time to discuss.
V/r,
Sara Clouse
Reply Reply to Comment Collapse Subdiscussion Sara Clouse
Sara Clouse Thursday Nov 24 at 4:03am Air Traffic Control Operational and Strategic Risks in Mexico
Air Traffic Control (ATC) in Mexico is provided by SENEAM Air Traffic Management, a government enterprise under the Ministry of Communication and Transport. The safety of US aviation assets along the US/Mexico border and in Mexico is contingent on standards upheld by Mexican ATC, presenting several challenges. In addition to problems with staffing and equipment, Mexico has suffered critical aviation errors due to ATC oversight at various
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facilities, particularly in Mexico City. In 2021, the country was downgraded to FAA Category 2 status, putting pressure on the FAA to provide increased resources and support to their ATC operations.
Operational Risk
The most significant risk related to ATC in Mexico is the degradation of safety for US aviation assets. The safety of these assets along the border and in Mexico relies on the Mexican government’s ability to meet critical operational demands including equipment and staffing requirements. Mexico is a member state of the ICAO under Part 2, “States which make the largest contribution to the provision of facilities for international civil air navigation.” (ICAO, 2022). Mexico held FAA Category 1 status, “Does comply with ICAO standards” until May 2021 when it was downgraded to FAA Category 2 status, “Does not comply with ICAO standards.” (FAA, 2022). Equipment and staffing issues contributed to the downgrade as well as
documented lapses in regulatory compliance by controllers. These issues are compounded by a deficit of approximately 300 air traffic controllers country-wide. The secretary general of Mexico’s ATC union reported that some airports employ only three controllers, overburdened and working back-to-back rotating shifts. Along the Pacific Coast, ATC Towers lack equipment like radios, light guns, and barometers. Safety violations are rising in tandem with increased air traffic at Mexico City Airport (AIFA) and, after a near-collision in May 2022, senior transport officials have implemented a rapid plan to shift 25% of air traffic from AIFA to alternate locations. For international flights between the US and Mexico, safety concerns are paramount.
Restitution of FAA Category 1 status will represent increased safety and is a shared objective of the US and Mexico.
Strategic Risk
A strategic risk related to Mexican ATC service is a prolonged downgrade of FAA categorization. For the duration of the downgrade, increased resources and assistance on behalf of the US are necessary and agreed upon. Following the 2021 status downgrade, the FAA signed
a technical assistance agreement with the Mexican government to harmonize safety and reliability in aviation between the two countries. This agreement stipulates that both parties will facilitate mutual acceptance of airworthiness and aeronautical product approvals, mutual monitoring of facilities/ personnel/ flight crews/ aviation training, and mutual cooperation in sustaining equivalent levels of aviation safety objectives. Although provisions of the agreement will likely continue after the resolution of Mexico’s FAA downgrade, the primary purpose of the agreement is to assist Mexico in regaining Category 1 status. This will require intensive planing and execution on the part of the Mexican Ministry of Communication and Transportation to resolve issues with pilots, airlines, and controllers. US stakeholders mutually benefit from assistance provided to Mexican aviation systems, as resources along the border as well as international assets are shared. However, in a 2022 FAA Budget Submission, upgraded resources were requested noting on assistance provided to Mexico, “This portfolio now requires
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more time and seniority than the current junior-level officer at FAA headquarters can provide.” (US Department of Transportation, 2021). If the Mexican government is unable to regain Category 1 status, prolonged assistance will be at the expense of the FAA and US government.
References
Copeland, C. (2022, May 10). Air Traffic Emergency in Mexico, not just in the capital
. Courthouse News Service, https://www.courthousenews.com/air-traffic-emergency-nationwide-
in-mexico-not-just-in-the-capital/
Federal Aviation Administration. (2022). IASA Results Definitions
. https://www.faa.gov/about/initiatives/iasa/definitions
Federal Aviation Administration. (2022, June 29). Agreement Between the Government of the United States of America and the Government of the United Mexican States for the Promotion of Aviation Safety
, https://www.faa.gov/aircraft/air_cert/international/bilateral_agreements/ baa_basa_listing/media/mexico_basa_ea.pdf
International Civil Aviation Organization. (2022). Council States 2019-2022
. https://www.icao.int/about-icao/Council/Pages/council-states-2019-2022.aspx
US Department of Transportation. (2021). Budget Estimates Fiscal Year 2022. https://www.transportation.gov/sites/dot.gov/files/2021-05/FAA-FY-2022-Congressional-
Justification.pdf
Reply Reply to Comment
Collapse Subdiscussion David Ufen
David Ufen
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Friday Nov 25 at 2:55pm Sara,
Good post, I definitely see this as and operational risk and will have great impact on airlines and air travel in this region. For Mexican ATC to get back to status 1 how many controllers do they need? This also seems like this could cascade and proceed to get worse over time. What is the over all risk impact in this situation that you see? I would say this is severe issue and will need to
be prioritized.
David
Reply Reply to Comment
Collapse Subdiscussion Sara Clouse
Sara Clouse Saturday Nov 26 at 8:35pm David,
I haven't been able to track down an exact number of controllers working in Mexico. There are additional concerns with regaining Category 1 status including airspace remapping, controllers hired after failing the entrance exams, etc. You make a good point that this will likely get worse with time, especially with air travel on the rise post-covid and in general. Unfortunately the impact of this risk has been increased safety incidents. This summer, a passenger jet had to abort
a landing into Mexico City for another aircraft was cleared for takeoff from the same runway (link to the video below if you are interested). I agree also that this is a severe issue and should be a top priority for transportation officials in Mexico. Thanks for taking the time to discuss!
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V/r,
Sara
https://youtu.be/ogLbkDAevxs
Links to an external site.
Reply Reply to Comment Collapse Subdiscussion Nikki Grodus
Nikki Grodus Saturday Nov 26 at 2:21pm Sara,
While reading this, I can't help but think about planning vacations in Mexico. I just love going there, whether to Cancun for the non-stop flight and tons of all-inclusive hotels, or a little further to Cabo San Lucas or Puerto Vallarta. It seems that tourism is a huge part of the economy in several parts of Mexico, and air travel is the main way to get there. It seems that Mexico would make upgrading its FAA status back up to Category 1 a priority with pressure from politicians.
So maybe I'm writing a fiction novel in my head, but having just returned from Cabo San Lucas a month ago, I learned that the guy who owns the little area where you can ride camels, ATVs, go in a helicopter, etc. is rumored to be a Mexican mafia guy. My cab driver said his compound is one of many he owns in Mexico. If tourism abates in Mexico and everyone starts going to the Virgin Islands or Punta Cana instead, this mafia guy would probably be pretty upset. It seems he'd put pressure on them to be sure that Americans feel nice and safe to come to ride his camels and ATVs. Now multiply that times several mafia guys who own dolphins and zip lines. The pressure would be pretty strong, right?
I think I need to watch a Duane Johnson movie now.
Reply Reply to Comment
Collapse Subdiscussion Sara Clouse
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Sara Clouse Sunday Nov 27 at 4:55pm
Nikki,
Tourism is a huge industry for some areas in Mexico. Actually, you may have a good idea for a movie- a mafia/cartel enforcing Air Traffic standards. I would watch it! I don't
actually see the issue affecting travel so long as no major incidents occur. Hopefully controllers there will see an uptick in numbers and better equipment with new agreements
signed with the FAA. Thanks for taking the time to discuss!
V/r,
Sara
Reply Reply to Comment Collapse Subdiscussion Olutosin Olajide
Olutosin Olajide Saturday Nov 26 at 3:28pm Hello Sara,
Thanks for your insight exposing how safety risks and operational risks resulted into the downgrades of the airport to CAT II. The re-training aspect of all sectors of the Air Traffic Control is time consuming and is highly regulated. The cascade effects of all this will be felt not only in the aviation industries among airlines and airport users but also in other industries such as
tourism, transport, agricultural etc.
Regards,
Olutosin.
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Collapse Subdiscussion Sara Clouse
Sara Clouse Sunday Nov 27 at 4:58pm
o
Olutosin,
You are right that many sectors are likely to be affected. As with all risks, there might be upsides to diverting traffic to airports outside of Mexico City. Maybe outlying towns will experience economic benefits or become established transport/cargo hubs. Thanks for taking the time to read my post!
V/r,
Sara
Reply Reply to Comment Collapse Subdiscussion Aaron Pennington
Aaron Pennington Thursday Nov 24 at 10:12am Raytheon in Saudi Arabia -Diplomatic and Risks
Strategic Risks
The Wall Street Journal stated that investors and experts anticipate that the company's will halt its military supplies to Saudi Arabia and urged allies to follow suit. In 2017, 618 air-to-
ground missiles was delivered to Saudi Arabia by Raytheon under a $302 million contract (American City Business Journals, 2022). As a result, the U.S. government cleared a $670 million contract in March 2018 for Raytheon to supply Saudi Arabia 6,700 missiles. (American City Business Journals, 2022). Additionally, as part of its mission to assist build world-class defense and cyber capabilities in the Kingdom of Saudi Arabia. Raytheon declared in May 2018 that it would open a subsidiary in Riyadh and presently employs more than 400 people in Saudi Arabia" (American City Business Journals, 2022). The strategic planning process is a yearly
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occurrence in the majority of businesses (Segal, 2011). For example, a lot of money is spent over
several weeks on this formal function. The outcome of the activity is a substantial binder containing the strategic strategy (Segal, 2011). For instance, how the entire strategy, including ancillary methods or initiatives, will produce the financial results that management is committed to is a crucial component. These financial results are expressed as a financial projection for the strategic plan, often for the next three to five years. As a result, by the time it is finished, the strategic plan will be a static document that is at least partially out of date (Segal, 2011).
Financial Risks
Auxiliary techniques or initiatives, will produce the financial results that management is committed to is a crucial component (Segal, 2011). For instance, financial outcomes are presented as a financial projection for the strategic plan, often for the next three to five years. Raytheon is Saudi Arabia has developed a high-level, top-down strategic plan financial projection that projected slow but steady growth over the plan period of three years. (Yahoo, 2018). For example, they also had a separate, more detailed financial projection related to the sales force, including salespeople hired, salesperson retention, and productivity. Raytheon had limited financial risks in their dealings with Saudi Arabia (Yahoo, 2018). For instance, lawmakers considered imposing limits on arms sales to the kingdom, according to analysts at Cowen Research. One of America's most important financial allies is in the oil-rich monarchy of Saudi Arabia. The Saudis are without a doubt the biggest consumers of American-made weapons, a position that has protected the country from economic sanctions and the Saudi-led conflict in Yemen (Yahoo, 2018). President Donald Trump has repeatedly opposed imposing any
economic or political consequences for Riyadh's behavior, citing the significance of the U.S. relationship with Saudi Arabia. Trump reaffirmed last week that America would continue to support Saudi Arabia in an exceptional speech (Yahoo, 2018).
References
American City Business Journals. (2022). Raytheon's Saudi Arabia ties could come under scrutiny in earnings call. Boston Business Journals.
Segal, Sim. (2011). Corporate Value of Enterprise Risk Management : The Next Step in Business
Management
, John Wiley & Sons, Incorporated.
Yahoo! (2018). Limits on arms sales to Saudi Arabia would likely have little impact on US defense firms' revenue
. Yahoo! Finance.
Reply Reply to Comment Collapse Subdiscussion Greer Koerner
Greer Koerner Thursday Nov 24 at 4:10pm
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Aerospace Industry - Regulatory and Operational risks in Turkey
Hello Classmates,
First, Happy Thanksgiving to all!!!
For this discussion, since I work in the aerospace industry, I opted to look risks that would impact conducting business in Turkey related to products produced from the aerospace industry.
Category: Strategic
Sub-category: Legislative/Regulatory
Source: Regulatory In December 2020, the US. Dept of State issued sanctions on Turkey under the Countering America’s Adversaries Through Sanctions Act (CAATSA) as Turkey had engaged in a transaction with Russia’s main arms, an export entity (Pompeo, 2020). If a company prior to this sanction had started projects with the Turkish government, it could put their continued/future business at risk for not being allowed to deliver products and identify workarounds (Comply Advantage, 2022). This could also have contractual impacts that result in financial penalties. While the sanctions allow organizations to still conduct business with other Turkish businesses other than the government, there is always a chance that this sanction could extend past the Turkish government into private business. U.S. businesses need to continually evaluate their business model to ensure that they are protecting and have contractual clauses that allow them to exit should the regulatory landscape in Turkey grow worse.
Category: Operations
Sub-category: Human Resource-Talent Management
Source: Reputational
Mostly all organizations must follow and have a human resource department, as well as ethics group and are required to have programs in place to protect individuals from an ethical and safety perspective (i.e., protect from hazards, protect from harassing behavior, etc.). According to a human world report in 2022, Turkey had opted out of the Istanbul convention, and there has been increased protest of women and LGBTQ+ groups where violence is at a high (Human Rights Watch, 2022). When U.S. companies have policies in place so that the business environment is inclusive of all people and that all feel safe coming to work, it might be challenging to maintain an environment over in Turkey. The companies would need to conduct a cost/benefit analysis to determine if this risk were to be realized what would be the cost, and that might not be easily quantified. If something detrimental occurred, how would the company be
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viewed, by their own employees, external relations (politicians, non-profit organizations), future customers. This could impact their reputation which would ultimately impact their branding.
References
Comply Advantage. (2022, May 16). Turkey Sanctions: What you need to know
. Retrieved from Comply Advantage: https://complyadvantage.com/insights/turkey-sanctions/
Human Rights Watch. (2022). Turkey World Report 2022
. Retrieved from Human Rights Watch:
https://www.hrw.org/world-report/2022/country-chapters/turkey
Pompeo, M. (2020, December 14). The United States Sanctions Turkey Under CAATSA 231
. Retrieved from United States Department of State: https://2017-2021.state.gov/the-united-states-
sanctions-turkey-under-caatsa-231/index.html#:~:text=Today%2C%20the%20United%20States
%20is,main%20arms%20export%20entity%2C%20by
Reply Reply to Comment
Collapse Subdiscussion Cody Henderson
Cody Henderson Friday Nov 25 at 11:26am Greer,
Looking at your second risk, you say that most all organizations mist follow and have human resource department. This is good that people are protected. What happens if an organization fails to follow the rules of the departments? Since you said most of them, why is it not all of the organizations? It is good that policies are in place to promote inclusion, like you said in Turkey that may be challenging. I have little experience with European countries but have met a couple of people and inclusion is not as big of a deal over there. It may be costly to promote and implement these inclusion processes especially if right away it is not accepted because it will need to be pushed more.
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Collapse Subdiscussion Greer Koerner
Greer Koerner Saturday Nov 26 at 10:38pm
Hi Cody - thank you for your questions regarding my response. Yes, I say that most organizations do; however, I know there are organizations that don't have HR departments; therefore, it wouldn't be correct to say all. I believe in the US if there is a company with less than a certain amount of people, they are not required to have one, and
if they don't, I am sure there are consequences, but without a little more research, I wouldn't be able to tell you what those are. It should be all, but again, for smaller organizations, does it make sense, or do they have an HR, it is a designated person that also does three other jobs, not where it is their sole job to focus on. I also agree, that trying to potentially "force" policies where not needed could backfire and have other unintended consequences. What I have learned in working with other countries is that respecting their culture (that specific country's culture) is very important. While my forte is not international business, I would think that finding a good balance between ensuring that the US company respects the country's culture but also follows and promotes the values and policies it has domestically to the best it can.
Reply Reply to Comment Collapse Subdiscussion Ryan Seader
Ryan Seader Saturday Nov 26 at 10:28pm Hello Greer
I have enjoyed your study on Turkey I find it very interesting within the interest of human rights as you mentioned that maintaining an environment in Turkey may be difficult. Companies would
need to conduct a cost/benefit analysis to determine what the cost would be if this risk were to be
realized, which may not be easily quantifiable. If something bad happened, how would the
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company be perceived by its own employees, external relations (politicians, non-profit organizations), and potential customers? This may have an impact on their reputation, which in turn may have an impact on their branding. have learned the bulk of Turkey’s economy is made up of a diversified services sector including real estate, tourism, financial services, education and
health. Industry continues to play an important role, as does agriculture. Manufacturing accounts for a large proportion of Turkish exports to Europe in the form of household goods e.g. Beko and
Vestel.
V/R
Ryan
Reply Reply to Comment
Collapse Subdiscussion Greer Koerner
Greer Koerner Saturday Nov 26 at 10:43pm
o
Hi Ryan - thank you, I find the human rights issue interesting from a business perspective and find it one of the more challenging issues businesses must navigate to conduct businesses in countries that do not take it as seriously or have strict policies as we do in the U.S. As you mentioned, companies need to do their due diligence, conducting a cost/benefit analysis in evaluating their risks to determine if makes sense to proceed. Yes, while the risk is financial, it is financial
because it is reputational. Excellent point that their branding can be impacted because their customers, employees, politics don't view them in a favorable way any longer. It goes back to what we are talking, enterprise risk management, it is necessary to look at these risks holistically because the impacts could be much greater than right in front of you.
Thank you for your feedback.
Reply Reply to Comment Collapse Subdiscussion David Ufen
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David Ufen Thursday Nov 24 at 11pm Hello,
I work for a very large aerospace and defense company, Collins Aerospace, which is a division of Raytheon Technologies. Over the years they have evaluated new countries in which to do business and which ones to exit from. The country that I have found the most intriguing is Iran. Currently Collins Aerospace does not do any business with them currently. There was a time a few years ago where it started to look like we could begin with sanctions lifting under the Obama
administration. That door closed again quite quickly which for a business is the reason for ERM and risk assessment activities. For Collins to do business in Iran there are both strategic and operational risks to consider.
Strategic Risk
With Iran being the country in question and Collins being a US based company there are sanctions that are being heavily levied by the US in Iran. This situation has been in place since 1979 with the seizure of the U.S. Embassy in Tehran (State, 2022). If sanctions were to lift, there would be a question of for how long and what would be allowed to be done in terms of business there. Any amount of business needs to be worth that extreme level of risk. I would identify this risk as strategic and subcategorize this risk as international as the government’s position with foreign entities and how sanctions can be levied against them quickly (Sims, 2011). The risk is total loss of business that is being done in that region as it is so volatile.
Operational Risk
With going into a place such as Iran to do business, Collins would have to evaluate the operational risk to do business there. I would classify the risk as operational risk and a subcategory of disasters as anything that can be at risk for terrorism or war needs to be looked at through that lens (Sims, 2011). The sanctions are in place in Iran due to these specific issues. If a business was working in this country the chances of these risks are high and could have a severe impact on how that business could be conducted.
Overall, the risks doing business in such a volatile country are probably too great and not worth the effort as it is going to be a limited market, but through ERM when the option is presented it can be evaluated for if it should be pursued. This country has it has been a closed market for 40+
years and the opportunities need to be properly evaluated when they present themselves.
David
Segal, S. (2011) Corporate value of enterprise risk management: The next step in Business Management. J. Wiley & Sons.
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State (2022) Iran sanctions. Economic sanctions policy and implementation. U.S. Department of State. Iran Sanctions - United States Department of State
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Collapse Subdiscussion Jose Perez Calderon
Jose Perez Calderon Friday Nov 25 at 4:21pm David,
Strong points and an interesting choice. The middle east in general is an interesting yet difficult part of the world to do business with. Politics plays a significant role in the success or failure of business in this part of the world. You made an interesting point about the risk of doing business in Iran being too great. Do you think this will change in the future? From your perspective what can influence this?
Reply Reply to Comment
Collapse Subdiscussion David Ufen
David Ufen Saturday Nov 26 at 5:31pm
Jose,
This can definitely change in the future, but as it does change risk assessment will need to
be key to how business will get done in this region. I truly believe that any country is one
or two leaders away from a change in direction. If that happens in both countries progress can be made.
Regards,
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David
Reply Reply to Comment Collapse Subdiscussion John Barbachano
John Barbachano Sunday Nov 27 at 8:14pm
David,
Great example of how Collins Aerospace would be taking a risk by doing business in Iran. Both of your examples first, of sanctions and the volatility both seem to be high probability and consequence to me. The risk of one day having a profitable business and then the next being shut down due to either of these risks seems to outweigh the pros of doing business within Iran. It seems that Collins Aerospace will need to do a lot of evaluation before taking that step if the opportunity ever presents itself.
Reply Reply to Comment Collapse Subdiscussion Cody Henderson
Cody Henderson Thursday Nov 24 at 11:26pm Class,
As I am currently a graduate assistant coach for the baseball team I chose to write about about a company I had previously worked for.
Chipotle Operational and Strategic Risks in India
Chipotle I chose India as the country to be considered because there are certain cultural norms that may prevent Chipotle from being successful.
Operational Risk-
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The first risk is that some people in the Indian culture do not eat animal products. Mostly Hindus
don't eat eggs, fish, poultry or beef. Very strict Hindus also keep alcohol, caffeine and other stimulants out of their diets as well. This becomes a operational risk because it has to do with their processes. Chipotle's main courses have steak, chicken, and pork in them. This is in the subcategory of processes. The company to be supported in India would have to change their menu. Things like their signature queso cheese would not be offered because almost no one around the country would eat it. The risk division would be menu selection. With Hindu people not eating any animal products the menu of Chipotle would have to be heavily modified. This is a risk because they will have to transform their menu to a more vegan menu. This could cost the company cost a lot of money because there will be products they need to remove and add others. The company will have to go away from what their core systems and processes which makes it hard for them to stay consistent.
Financial Risk-
The second risk is having to do a partial rebrand. The two risks go together, since the menu items
have to change the menu and advertisement is going to be different from what they normally do. This will force them to spend a lot of money to add the products and advertise the new products. The risk subcategory is market and the division is rebranding. The company has gone into other countries in the past but none with as many cultural norms that would force them to change their whole brand. Training workers in India would also be costly because it is culturally different that
the concept is new and no one has done it before.
Reply Reply to Comment
Collapse Subdiscussion Cody Henderson
Cody Henderson Thursday Nov 24 at 11:35pm Finishing the second risk the rebrand is a financial risk in the market subcategory because there can be unexpected prices or rates that happen throughout the rebrand. It could vary on the amount of money that would need to be spent to fully rebrand and be successful.
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Collapse Subdiscussion Nikki Grodus
Nikki Grodus Saturday Nov 26 at 2:06pm
Cody,
I was immediately intrigued by the idea of a Chipotle in India. The issues you raised are quite valid, but you presented a solution with rebranding. I bet that Chipotle could benchmark by looking at other Mexican food companies that are operating successfully in India, and then derive a menu from there. By using a local interpretation of Mexican food (like we do with "American Mexican or TexMex" here in the States), they could be quite popular. The model of how they make the food is good, essentially building your own bowls, burritos, and nachos, much like a Subway restaurant. The product itself could
vary, but it's the process of fresh but fast food that is not changing. Perhaps using locally sourced vegetables could be part of their rebranding. I know that Mexican and Indian food both can be quite spicy with the use of peppers and curries. They share similarities in that way. I think it would be very interesting to see something like this, much like getting rice as a side dish in Thailand at Mcdonald's.
Great idea!
Reply Reply to Comment Collapse Subdiscussion Olutosin Olajide
Olutosin Olajide Sunday Nov 27 at 9:37am Hi Cody,
Great point sharing the financial and organizational risks facing Chipotle in India. I agreed the company will have to invest in research and development to come up with a means of targeting their customers and redesign their product in order to reduce their financial loss. Re-branding will also be a key issue to consider due to the norms and culture in the environment in which they operate.
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Regards,
Olutosin.
Reply Reply to Comment Collapse Subdiscussion Shahaan Khan
Shahaan Khan Sunday Nov 27 at 7:41pm Cody,
It is interesting to think how much Chipotle would have to change its menu and brand to appeal to an Indian market. I think the operational risk is significant and perhaps that Chipotle would not be able to thrive in that country, considering the vast competition it would face with more established businesses already there and accepted by the people, but even street vendors that may
be more familiar to potential customers. A rebrand and menu alteration to break into the Indian market has a high cost of entry and has a potential to be very draining on the company.
Reply Reply to Comment Collapse Subdiscussion John Barbachano
John Barbachano Sunday Nov 27 at 8:20pm
Cody,
Interesting selection. You are definitely right, a place like Chipotle's would have a difficult time being profitable in a place like India. I have never been there but did live in
East Africa where there are a lot of Indian people. The funny thing is throughout a lot of my travels and the few foreign nations that I have lived, I have noticed US food companies, not so much Chipotle type companies but other's like Buffalo Wild Wings and Chili's have adapted their menus to exactly what you are talking about; I guess they accepted their risks and adapted as needed.
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Collapse Subdiscussion Thomas Vining
Thomas Vining Friday Nov 25 at 8:02am Risks Faced by Insurance Companies in Ukraine
Every individual and business is subject to risks. We are prone to risks that we are unaware of. In
most cases, these risks are accidental and can cause death, permanent disability, or partial disability to an individual. If those risks occur to a business, they might cause its closure, poor performance, and a significant financial loss. We take insurance cover for our businesses and life
to deal with these severe outcomes. We must pay premiums and receive a certain claim amount whenever the insured risks occur. The amount to be paid as a premium depends on various things, such as the chances of the risk occurring. Therefore, insurance companies should consider
various risks associated with their area of operation to avoid losses. If a country has political instability, there are high chances that more insured risks will happen and more claims will be paid, causing a financial loss to the company. Considering the current situation in Ukraine, insurance companies are facing many risks. Some of these risks are:
Market volatility risk
Since Russia invaded Ukraine, cyber-attack cases on government and business agencies have increased. As a result, cyber insurance claims have been rapidly increasing due to data leakages and business interruptions. The increase in cyber insurance claims will cause a financial blow to the insurance companies since most of them cannot withstand the catastrophic losses caused by the Russia-Ukraine war. War causes an increase in inflation. The rise in inflation pushes up non-
life insurance claims costs. In Ukraine, the high inflation is already causing margin pressure in short-tail lines because of the rising repair costs of vehicles and buildings. Although insurance companies can increase premiums accordingly, the persistence of high inflation will result in reserve deficiencies in the long run.
Operation Risk
Insurance cover will be most demanded if the insured or the beneficiaries will be compensated in
case the risk insured against occurs. However, in the event of war, as in Ukraine, people are more concerned about their safety than taking insurance coverage. People are fleeing away from their country, leaving their property to search for safety. In this case, insurance companies are less likely to be operational since there are no customers to serve. In addition, no worker is willing to risk their life in a politically unstable country to offer insurance services. Before insurance companies decide on the geographical location to operate, they should consider the political risks since they are primary determinants of the business operation. Given the current Russia-Ukraine war, operating an insurance company in Ukraine comes with more risks than benefits.
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References
Wire, F. (2022, March 17). Fitch Ratings: Credit Ratings & Analysis for Financial Markets.
https://www.fitchratings.com/research/insurance/market-volatility-is-ukraine-wars-
main-risk-for-european-insurers-17-03-2022 Links to an external site.
Reply Reply to Comment
Collapse Subdiscussion David Ufen
David Ufen Friday Nov 25 at 3pm Thomas,
I like the isurance risk part of your post. Although not always due to war you can see when there is a heightened impact to what insurance has to cover the cost can go up or not be offered. You can see this play out in places like Florida because of hurricanes. Only a few insurance companies sell insurance there and it is at a high cost. The reason might be different but the results are similar.
Regards,
David
Reply Reply to Comment Collapse Subdiscussion Cody Henderson
Cody Henderson
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Saturday Nov 26 at 3:34pm
Thomas,
The reserve deficiencies that you mentioned prove to be a big risk because there will continue to be claims as long as the war goes on. The longer the war goes on the more inflation there will be. Insurance companies will continue to help people but as long as the war goes on the harder their job will be. The insurance companies having to give out more money because everything costs more is going to hurt everyone around the countries not just the companies.
Reply Reply to Comment Collapse Subdiscussion Marcel Melo
Marcel Melo Friday Nov 25 at 10:19am United States Army strategic and environmental risks in Siani, Egypt.
For nearly a year now I have been deployed to the Siani province of Egypt in accordance with the Camp David accords and the Egypt-Israel peace treaty. This peace treaty was signed in 1978 and is the longest withstanding peace treaty to date. Although the treaty has withstood the test of time but is subject to constant risk with shifts in political parties and environmental considerations that govern the treaty. When you run an operation in a different country, you always expose yourself to a certain amount of risk. In order to keep potential losses to a minimum, it is essential for an organization like the US Military, which operates in a variety of countries, to have an accurate understanding of the dangers that are specific to each nation.
Strategic Risk It’s no secret that there has always been political tension in the Middle East. This unexpected change in the political environment could change the support that the host nation provides to foreign military forces. Currently in Siani, this is mitigated by a common military partnership between multi-national forces and more importantly both Egypt and Israel are currently battling a common enemy: ISIS. This strategic/strategic risk is low while all parties have common interests but can easily shift with a varied political agenda or if any multi-national force causes a disruption. This is important to note because these are risks that constantly have to be monitored and adjusted. A value-based ERM process can strengthen the strategic planning process by
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analyzing political trends and analyzing the valuation of having a multi-national force by showing the implications of violating the current peace treaty.
Environmental Risk
There is also a risk that the environmental conditions in a country will have a negative impact on the outcome of the mission’s success. There are both internal and external environmental considerations that can affect the entire mission. For example, one external environmental risk could be future economic conditions that might impact the mission and one internal environmental risk could be the shrinking of the multi-national force over the years. Changes in both the external or internal environment or changes in strategy or operations can be readily reflected in the value-based ERM model. When reviewing the environmental risk associated with
this mission, we can create a strategic plan based on the likelihood of a stronger or weaker force to determine the any key risk scenarios.
References:
Bassist, R. (2021, November 9). Israel agrees to more Egyptian troops in Sinai
. Al-Monitor. Retrieved November 25, 2022, from https://www.al-monitor.com/originals/2021/11/israel-
agrees-more-egyptian-troops-sinai
Segal, S. (2011). Corporate value of enterprise risk management : The next step in business management
. John Wiley & Sons, Incorporated.
Reply Reply to Comment
Collapse Subdiscussion Jose Perez Calderon
Jose Perez Calderon Saturday Nov 26 at 9:35am
Marcel,
Good points. I agree, political tensions in the middle east are a key risk and play a significant role in the decision making. The US has a difficult job, maintaining order as an outsider in a foreign region is not an easy task. The ERM process can assist in the decision-making process by defining, quantifying, and consistently monitoring the risks.
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A well-developed plan or strategy can be developed using this information for an immediate response when needed.
Reply Reply to Comment Collapse Subdiscussion Jose Perez Calderon
Jose Perez Calderon Friday Nov 25 at 3:15pm Greetings,
Delta Air Lines Financial and Strategic Risks in the United Arab Emirates
I have been a Delta Air Lines employee for over a decade, Delta is one of the largest airlines in the world. Deltas has a massive operation; it stretches from the US to multiple sites around the world. Delta has taken various steps to prepare for the future. I believe Delta has done a respectable job preparing for a future in which only one thing is guaranteed, uncertainty. Delta is no stranger to this; the company has been around for a long time and has been through many challenging times. The company’s difficult past has given it a competitive edge. Regardless of this, the company has struggled to establish permanent routes to cities in the United Arab Emirates.
First issue, financial risk. Delta has tried to establish routes to this country in the past but ran into financial difficulties and had to stop the service. The cost of maintaining the route supersedes the profits, the competition for this location is a fierce one. The are many governments subsidized airlines in the region that can operate nonstop regardless of the expenses. This is a challenge for any company trying to enter the market with the objective of making a profit.
Second issue, strategic risk. The government intervention in the United Arab Emirates is a big obstacle. This is the leading issue with establishing and maintaining a route, unexpected change in the political environment can easily disrupt the operation. Government intervention makes it difficult to enter the market, the political support given to national companies prevents outsiders from entering the market.
Reference:
Segal, S. (2011). Corporate value of enterprise risk management: The next step in business management
. John Wiley & Sons, Incorporated.
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Collapse Subdiscussion Maria Delgado
Maria Delgado Saturday Nov 26 at 12:16pm Hi Jose,
As you pointed out, Delta is one of the largest airlines in the world. In fact, as per the Insider report on August 14, 2022, Delta is considered number three on the list in the world, ranked by available seats (Rains, 2022). In addition, Delta is also known as a legacy carrier. It is interesting
to see how a gigantic carrier struggles to establish permanent routes in the United Arab Emirates.
Competition is a complex matter that must be very well analyzed before entering the market. Airlines must consider the long-run profit rather than the short-run revenue to cover fixed costs and achieve a return on capital (Adler & Gellman, 2012). I understand that government subsidies
or incentives could drastically affect entering the marketing and maintaining a route. These incentives are also part of airports' strategies to attract air carriers, which could affect other airlines, making it impossible to sustain the route and becoming financially unsustainable. Airlines must understand the market and deal with barriers as part of the strategic and financial risk to have a successful Enterprise Risk Management process.
References
Adlera, N., & Gellman, A. (2012, January 30). Strategies for managing risk in a changing aviation environment
. Retrieved from PubMed.gov Web site: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7148890/
Rains, T. (2022, August 14). Most airlines are now much smaller than they were before the pandemic. See the 20 biggest airlines in the world ranked by available seats.
Retrieved from Insider Web site: https://www.businessinsider.com/20-biggest-airlines-in-the-world-southwest-
american-delta-2022-8
Reply Reply to Comment Collapse Subdiscussion Marcel Melo
Marcel Melo Sunday Nov 27 at 6:35am
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Jose-
I'm impressed how long you have been with Delta Air Lines for. Delta is an amazing company to
work for and I have a few friends who fly for Delta. I can tell you're passionate about Delta Air Lines and enjoyed reading your discussion post this week. DAL started an ERM program after 9/11 when their risk tolerance and balance sheet declined. I think that they needed to better understand their risk tolerance to manage any issues that could cause stunt their growth. Their strategy was to build a collaborative ERM program and have more interaction with "risk leaders"
than a more centralized CRO role. DAL wasn't always profitable and Ed Bastian has had a lot to do with the recent financial success of the company. Under Ed Bastian's leadership, Delta has transformed the air travel experience with investments in technology, aircraft, airport facilities and, most importantly, Delta’s employees. Under his tenor, DAL has become the world’s most reliable airline while growing its global footprint and enhancing the customer experience in the air and on the ground. It's no surprise that DAL has continually been ranked as the top airline in a multitude of polls. It would be a dream of mine to one day fly for Delta Air Lines.
Respectfully,
-Marcel Melo
REFERENCES:
Delta ranked no. 1 US airline by Wall Street Journal
. Delta News Hub. (2022, January 28). Retrieved November 27, 2022, from https://news.delta.com/delta-ranked-no-1-us-airline-
wall-street-journal
Reply Reply to Comment Collapse Subdiscussion Shahaan Khan
Shahaan Khan Sunday Nov 27 at 7:37pm
Jose,
I agree that the UAE is probably one of the most difficult locations to establish a consistent route. The UAE heavily contests competition with their own airline, Emirates, through subsidies. The same case with Qatar and their own state airline, which creates almost a bottleneck for any routes in the middle east that now have to connect through Dubai.
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Collapse Subdiscussion Olutosin Olajide
Olutosin Olajide Saturday Nov 26 at 10:07am Emirate Airlines Financial and Operational risk in Nigeria.
Emirate Airlines is one of the leading Commercial Airlines in the world. With multiple flights in and out Nigeria and value-added services across their long-haul international routes, it is one of the most flown airlines to the Middle East and has several connections to the rest of the world.
In August 2022, the airline announced it will be suspending all its operations in Nigeria effective
October, due to inability to repatriate revenue of $84 million through the Nigerian financial bodies. Several issues were cited as the cause, currency freefall was identified as one of the fundamental issues leading to the financial risk experienced by the airline. In October 2022 Emirate announced complete suspension of flight Operations into the country as the Central bank
of Nigeria was unable to repatriate all trapped funds. Though some efforts were made to resolve the issue, the clearance of remaining trapped funds was unresolved. The suspension was to mitigate further financial losses.
Operational risk: Shortages of Aviation fuel in Nigeria has led to many foreign airlines operating
to Nigeria to experience protracted operational delays, sky-rocketing prices, and cancellations. This supply-demand risk had led most foreign airlines operating long haul flights to avoid picking aviation fuel altogether in Nigeria but would rather operate to other neighboring countries to uplift required Jet A1. Emirates Airlines also experienced other operational difficulties in restrictions and limitations of schedules.
References
Segal, Sim.
Corporate Value of Enterprise Risk Management: The Next Step in Business Management
, John Wiley & Sons, Incorporated, 2011.
Princewill, N. (2022, August 19). Emirates airline suspends all flights to Nigeria as it struggles to repatriate funds
. CNN. Retrieved November 26, 2022, from https://edition.cnn.com/2022/08/18/africa/emirates-suspends-flights-nigeria-intl/index.html
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Collapse Subdiscussion Greer Koerner
Greer Koerner Saturday Nov 26 at 10:50pm Hi Olutosin - thank you for sharing your thoughts on this topic. These risks related to Emirate
Airlines in Nigeria are very interesting. You wonder how long the company tracked the potential financial loss that resulted in suspending airline service in the country. I wonder if they had seen "red flags" or other behavior that would lead them to make such a decision. As we have talked about in prior modules, if only we could take a look at their ERM program and see what their risk exposure and risk tolerance was. In addition, understanding what mitigation steps they took before this action didn't work. I am sure fuel shortages are a challenge in Nigeria and all over. I would also like to see how much the Nigerian government was involved and if they were willing to work with Emirate Airlines to help improve the financial and operational challenges.
Best,
Greer
Reply Reply to Comment Collapse Subdiscussion Serafina Vitale
Serafina Vitale Sunday Nov 27 at 8:46pm
Hi Olutosin,
Great points about financial risks, I was thinking the same thing. The trapping of funds can be terrifying to other organizations and make it very hard to trust an organization what that tendency. Very interesting points about operational risks, I did not even think about cancellations and crazy prices. This is something that other countries have a hard time regulating and are hard to dispute.
Reply Reply to Comment Collapse Subdiscussion John Barbachano
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John Barbachano Saturday Nov 26 at 11:41am Northrop Grumman (NGC) has recently had to deal with a Operational Risk due to the same supply chain issues the rest of the world has been faced with over the last few years. Recently, NGC built Cygnus spacecraft was scheduled to make a mission to the international space station but was delayed due to the Northrop Grumman’s Antares rocket uses Russian-made engines and Ukrainian booster cores. Due to the Russian/Ukranian war the build of the rocket for the Cygnus has been delayed due to hardware not being available from both Russia and Ukraine.
According to Kathy Warden, CEO., NGC has backup plans to power the spacecraft in case of further delays that will not meet the needs of NASA. “So there isn’t immediate disruption, and we have a plan in place that we could use other sources if needed, beyond those two launches.” (Clark, July 2022)
These risks can turn out to lower the company value for NGC, if they cannot figure out how to meet the schedule requirements. The operational risks include the ability of the spacecraft to accomplish its vital mission for resupply of goods and supplies. The risk of the mission not happening falls on the hands of NGC. Due to the unexpected change to the companies’ elements
related to their operations (Segal 2011) this can be considered an operational risk. NGC needs to
come up with a plan for execution that was not originally part of their operations.
Another international risk that Northrop Grumman faces is the decision of US Congress to retire the RQ-4 Global Hawk. This is a NATO aircraft that is being employed within the 5 NATO countries for Intelligence, Surveillance, Reconnaissance (ISR) missions. This Strategic risk to NGC could be based on the decision of these NATO countries to go with purchasing a aircraft for their ISR mission that is built by a different company, like Lockheed Martin or Boeing or a European based aircraft defense company.
The retirement of the Global Hawk might not affect the US because of other more advanced ISR platforms within the inventory. This could become a problem for other nations because of them not having the ability to procure other systems. The risk involved for both the NATO countries and NGC are that eventually the NATO versions of the RQ-4 will become unsustainable, and NGC will stop producing parts. This will cause a decrease in company value due to the loss of business from the NATO customers.
Clark, Stephen.(2019) Supply chain issues delay Northrop Grumman’s next space station cargo flight. Spaceflight Now. Pole Star Publications. Supply chain issues delay Northrop Grumman’s next space station cargo flight – Spaceflight Now Links to an external site.
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Segal, S. (2011).
Corporate value of enterprise risk management : The next step in business management
. John Wiley & Sons, Incorporated.
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Collapse Subdiscussion Greer Koerner
Greer Koerner Saturday Nov 26 at 10:57pm Hi John,
Thank you for sharing your thoughts on this discussion topic. I also work in defense industry and
the supply chain shortages are so challenging. This isn't specific to this industry, it really is happening all over. I know that there are shortages of cars at the dealers in my area because of the shortage of chips. To see delaer lots that used to be overflowing with cars, are now barely filling the very front row of parking is terribly sad.
The supply chain shortages are impacting many products that are to be delivered to government entities and risk being canceled or risk future business because the products can't be delivered on time. The other solution as you mentioned is that the customer goes with another company, that might be in a better position competitively to deliver a similar product. I have read a few articles recently on supply chain resiliency, very interesting. It was something that was talked about prior
to the pandemic, but has definitely caught traction and companies are trying to identify metrics to
capture so they can better understand their position, especially from a competitive perspective.
Best,
Greer
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Collapse Subdiscussion John Barbachano
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John Barbachano Sunday Nov 27 at 7:51pm
o
Greer,
I totally agree. Supply chain should definitely be a risk that many organizations at a minimum are continuously monitored, if not identified as one of their key risks. I currently work at Northrop Grumman on the B-2. We have such a supply
of parts problems that this has become a risk that we are continuingly keeping an eye on. We have no real means of mitigating it since the parts that we need ot rebuild the aircraft come from the USAF, so we currently have no ability to procure more parts to mitigate this risk.
I am also a mountain biker and there are backups of parts that bike companies have been able to identify this risk to their business and have actually had to build
bikes using some of their own stock of parts because the manufacturers are niot able to see the shop complete bikes.
Reply Reply to Comment Collapse Subdiscussion Christopher Mandel
Christopher Mandel Sunday Nov 27 at 6:16pm Excellents discussions this week on country risk. Its good to see you get the need for the emphasis on this particular exposure area.
Country risk has most often been viewed from an investment standpoint and it is in this exposure
area that most of the efforts have been focused. Here is a resource that dives deeper on this aspect of country risk and gives you a way to view the assessment process and why.
https://www.wallstreetmojo.com/country-risk/ Links to an external site.
In addition, here is a country risk map that is often the visual depiction of country -based exposures, for easy quotative identification and ranking of the risks:
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Ultimately, managing country risk is particularly important to multinationals but also for the military, politicians and governments.
PM
Reply Reply to Comment Collapse Subdiscussion Shahaan Khan
Shahaan Khan Sunday Nov 27 at 7:32pm Plan de Guadalupe - International Airport- Ramos Arizpe, Coahuila, Mexico
Working in the aviation industry, I have chosen the airport I am currently working at. The airport
has transitioned from a small international airport with a handful of routes in Central and South America to a freight and cargo airport with MROs on site.
Operational - Disasters
The airport in Ramos Arizpe is placed on one of the main highways in northeast Mexico which puts it on one of the main arteries of traffic inside the country and close to some of the largest auto manufacturing plants in the country. The area however was hard hit by the pandemic, which
greatly affected the international airport in Ramos Arizpe. Most of the airlines like AeroMexico cancelled their routes out of Ramos Arizpe which impacted much of the revenue that would come into the airport. Airport management felt this shift and was able to start leasing out some of
the hangars on the property to MROs to keep the airport active. This has brought more traffic in and also encouraged the amount of cargo flights coming in and out of the airport.
Operational - Compliance
Because of the shift to being a primarily freight and maintenance airport, an elevated focus has been placed onto the maintenance being done to aircraft on site. Companies like Servicios Aeronautical de Quintana, an MRO stationed at the Plan de Guadalupe Airport, moved half its operations from Mexico City to Ramos Arizpe in an effort to make their location more accessible
in a time where freight being moved by truck was severely limited. SAQ is an MRO that is certified by the FAA to maintain aircraft and even has paint service capabilities. Because of the movement of operations, SAQ has to make sure that the airport environment, and the work they do at the airport is compliant with FAA and EASA regulations. Typically an MRO operating
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outside of a governing body's borders the work they do is heavily scrutinized in an effort to maintain standards of work.
Segal, Sim.
Corporate Value of Enterprise Risk Management: The Next Step in Business Management
, John Wiley & Sons, Incorporated, 2011.
ProQuest Ebook Central
, http://ebookcentral.proquest.com/lib/erau/detail.action?docID=699453.Created from erau on 2022-11-21 15:44:21.
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Collapse Subdiscussion Serafina Vitale
Serafina Vitale Sunday Nov 27 at 8:40pm
Hi Shahaan,
Very interesting points and cool to be able to see how the risk played out in real-time. The shutdown from Covid leading to hangar leasing is a very strategic decision and I'm happy to see that the airport made this decision to help business.
Reply Reply to Comment Collapse Subdiscussion Serafina Vitale
Serafina Vitale Sunday Nov 27 at 8:38pm
I will be discussing risks within the aviation insurance sector of the industry to consider when operating abroad, specifically in Malaysia.
Risk Exploitation
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When doing business abroad, one of the most significant risks an insurance company can face is safety. It is proven that not all countries value safety the same which is why the company I work for has now limited the airlines (out of the country) to which they insure.
The U.S. is not used to Malaysian regulations and doing business there could lead to a large learning curve; aviation is not a field to have uncertainties in and a rough start with a company could be detrimental. That being said, regulations within a country are closely
related to cultural values and when organizations have different values there can be differences in agreement leading to issues. This can also be linked to risk exploitation, in
the readings, Segal describes that " risk exploitation refers to the conscious decision to take on additional risk exposure as part of a risk-priority decision". This can be interpreted as certain countries realizing that they are prioritizing things over safety. Safety is the biggest risk in aviation insurance and if an airline chooses to accept more safety risks that can lead to risk exploitation.
Economic Risk
Similarly to the above risk, being an oversea business, Malaysia and the U.S. use different currencies. This difference in currencies and inconsistencies in economic stability can be a big red flag for insurance companies. Theoretically, if an insurance company were to be based in Malaysia and wanted to insure airlines in other countries it could be difficult to convince clients that the Malaysian-based insurance company could financially back the airline in a time of disaster.
Sources
Ramanathan, S. (2016). Cross-cultural perspectives and influences in reporting airline disasters: the MH370 episode. Media Asia
, 43
(1), 23–34. https://doi.org/10.1080/01296612.2016.1169692
Segal, Sim. (2011). Corporate Value of Enterprise Risk Management : The Next Step in Business Management
, John Wiley & Sons, Incorporated. Reply Reply to Comment
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