The Indirect Benefit of Outsourcing, Plus Gauging Political Risk

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    The June 2005 issue of Harvard Business Review offers a couple of interesting articles.

    First, Jane Linder provides a sidebar-length story titled, “Outsourcing Integration,” in which she profiles MOL Group, a Hungary-based energy company that outsourced its F&A, IT, treasury and tax work in 2001. The year before, the company had bought 36% of Slovnaft and options on the rest. By outsourcing those back office functions in its operations, MOL was able to concentrate fully on integrating Slovnaft’s key business processes when it fully acquired the company in 2004 rather than sorting through how to mesh services between the two companies.

    I’d add an additional thought: It may be that in the future, small and mid-sized companies that have outsourced much of their peripheral operations will become more attractive as acquisition targets for this very same reason. Mergence with a parent company will be easier — cheaper, faster, more effective — to achieve.

    If you don’t already get HBR, you can purchase this article here for $6.

    Second, Ian Bremmer provides a nuanced piece on risk management in “Managing Risk in an Unstable World.” Mr. Bremmer works for a political-risk consulting firm. The theme of the article is global political risk: What it is, how to evaluate it and how to work within its constraints.

    As he points out in the story, the growth of offshoring mandates that companies become more astute about political risk. “In countries such as India (an established offshoring destination) and Kenya (an emerging one), living conditions for the working classes can be harsh, and there is greater threat of unrest than in developed countries with their large, relatively prosperous middle classes.” As you go farther afield in your search for ever cheaper labor or entry into new markets, you face growing exposure in ways you can’t imagine in the US. How many US managers have experience in dealing with the fallout from governments that mandate policies 180 degrees different one day to the next?

    Mr. Bremmer’s firm, along with Deutsche Bank, has developed a ”Stability Index,” which takes into account “20 composite indicators” in four areas (government, society, security and the economy) to derive monthly scores for each evaluated country. For example, India gets a low ranking in the area of security for March 2005, but a relatively high score in the area of the economy.

    If you’re involved in risk management analysis for your company, you’ll want to read Mr. Bremmer’s article. You’ll find that for $7 here.

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