Contemporary corporations have evolved into large-scale enterprises with complex subdivided structures that are increasingly dependent on third parties who are geographically dispersed across the globe. Traditionally corporations have “kept tabs” on their third parties through periodic assessments of a few specific risk parameters such as financial health and cyber risk. There is no arguing that these parameters are important to monitor, but when geographic events can change the business landscape in an instant, how can corporations relying on periodic assessments of only financial health or cyber susceptibility of their third parties be prepared to properly mitigate business disruption risks? The short answer is that they can’t. Read on to discover why and how your business can mitigate business disruption risk by leveraging continuous and real-time location risk intelligence and monitoring.

How Things Fall Apart

Among the highest-ranking business disruption risks posed by your third parties in foreign locations—often classed as “location risks” — are adverse climate events and geopolitical disruptions. Most businesses don’t monitor these risks or simply rely on their third parties to warn them or keep them updated on location-based risk events. But often, when things are changing or a risk event is expected to occur, third parties try to handle it on their own or don’t inform their clients. The fact is many location-based risk events occur with adequate notice, such as proposed changes in legislation, expected violence due to an upcoming election, or storm warnings. As a result, these risk events are manageable and business disruption minimizable or even preventable if the business is forewarned. For example, if employees of third parties can’t travel to their workplace due to a storm or political unrest, a forewarned business could mitigate the potential disruption by providing laptops, security tokens or alternative work locations.

In most cases, there is enough advance warning of an adverse event that business disruptions or other risks can be avoided or substantially mitigated — provided potential risks are continuously being monitored. In January of 2020, for instance, the Indian Supreme Court directed the seizure of JPMorgan Chase assets in connection with transactions between JPMC and Amrapali, an Indian realty company. The court determined that JPMC’s actions had put Amrapali’s assets beyond the reach of homeowners whose houses Amrapali had been paid to build, but failed to complete. Were that situation continuously risk-monitored, it would have been clear for at least a year or more, that an asset seizure at some future time was probable and that JPMC and others in similar situations, should act to mitigate the risks.

Increasingly, climate events also represent threats to third-party suppliers. If responded to quickly, resulting business interruptions can often be mitigated. Extensive flooding, for instance, occurred in Chennai, India in the fourth quarter of 2015. At that time, third-party supplier Cognizant (CTSH) had 11 different delivery and operations centers all located in the Chennai area. Clients who continuously monitored location risks such as this adverse weather event, were forewarned of the flooding danger to Cognizant’s operations before peak flooding occurred and activated a business continuity plan that enabled critical work to continue throughout the flood period.

The New Normal

Unfortunately, the JPMC and Cognizant examples are typical of a 21st-century trend toward higher geopolitical and location based risk. The World Economic Forum’s 2019 Global Risks Report shows a risk landscape with above-average and increasing likelihood of failure of regional or global governance, as well as profound social and political instabilities in almost every global region. Many of these instabilities, as with the JPMC issue and Cognizant disruption, can become full-fledged business disruption threats in a matter of days.

The other troubling 21st-century location risk is the increasing intensity and frequency of weather events — but of course many other geopolitical events can affect U.S. corporations that have supply-chain partners in foreign countries. The trade war between the U.S. and China that erupted in 2018, for example, prompted the U.S. government to update the “unreliable entities list” of foreign companies and people that would incur special commercial disadvantages, including disruptions for major U.S. corporations with Chinese third-party partners.

Add Location Intelligence to your Risk Programs

Another factor to consider is that the effect of some location-based risk events can be countrywide, whereas others are only local and may even be concentrated primarily in a single city. The January 2020 Australian fires, for instance, have been especially devastating in New South Wales — which is where nearly half of the country’s insurance and finance industries and a third of its communication industry are located — but as of this writing there are no fires at all in the Northern Territory and most of Western Australia is unaffected.

It’s no wonder then, that in an unsettled, often rapidly evolving geopolitical environment, traditional periodic risk assessments of third parties are inadequate. Firstly, because they lack any location-based risk factors, and secondly, because these location-based risks are continuous, and events with the potential to disrupt business happen in real-time. The avoidance of business disruption for global third parties depends upon continuous and real-time location monitoring and detailed location-based risk assessment, both of which can be difficult for a corporation to perform and sustain in-house.

That’s where a solution like Supply Wisdom comes in. Our groundbreaking continuous and real-time risk solution monitors over 300 risk parameters, including not only comprehensive third-party risk factors, but also the critical location risks and geopolitical developments discussed throughout this article. In fact, Supply Wisdom’s location-based risk categories go far beyond geo-political risks to cover macroeconomic, business, scalability, financial, infrastructure, quality of life, legal, security and compliance risks. Supply Wisdom’s location risk intelligence also includes the specific area, city, region or country, affected by the risk event. Our open API solution integrates seamlessly into your current risk management programs, ensuring you are aware of unfolding risk events in real-time with your third parties and the locations in which they operate to keep your business running smoothly and successfully.

Interested in keeping up-to-date on critical events in your third-party locations? Request a demo today.

About the Author

Patrick Gleeson holds a doctorate in 18th-century English literature, has more than 15 years of investment-management experience, and is a FINRA registered investment advisor. He has contributed hundreds of financial articles to U.S. print and online publications. In his spare time he performs his own compositions at electronic music festivals, most recently Moogfest.