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The risks to Asia businesses’ over US$440 billion international expansion

29/08/2024

Robust risk management strategies to navigate complex and evolving risks are crucial to sustainable international growth of Asia’s multinationals.

Across industries and sectors, Asia’s multinational companies have displayed global ambition with strategic investments internationally. In 2023, Japan and Korea reported outward Foreign Direct Investments (FDI) totalling US$184 billion and US$35 billion respectively1, with both markets expected to continue their growth trajectories as their domestic markets become saturated.

However, companies expanding overseas will face complicated risk environments and challenges across five stages: Project planning, financing, construction, operation, and exit. This includes geopolitical conflict, regulatory changes, climate change and technology disruption — reinforcing the necessity for enterprise risk management (ERM) to assess the insurability of risks.

Key risk considerations across the five stages and solutions to mitigating them

#1. Project planning: Identifying suitable markets for expansion

Businesses must consider the following risks when identifying suitable markets for international expansion: 

  • Geopolitical risks arising from elections, tariffs, armed conflicts, or social unrest and their impact on supply chain resilience.
  • Inflation risks and their impact on raw material, operation and labour costs. 
  • Extreme weather risks and the impact of climate change, on their assets and quantify their potential impact on business continuity.

Solutions: 

#2. Financing: Securing adequate risk protection for the expansion

At this stage, businesses must understand their total cost of risk, considering local requirements, insurance rates and trends that would be suitable for the specific expansion projects. 

Solutions:

  • Traditional insurance programs: By working with a trusted risk advisor with a global network, businesses can ensure comprehensive risk coverage while unlocking access to cost-efficient insurance capacity. 

Alternative risk transfer solutions:

  • Captives can help businesses manage costs when faced with limited capacity or high cost of risk in traditional markets. A captive feasibility study is useful when deciding on captive formation and the ideal program structure. 
  • Parametric insurance offers protection against specific trigger events, which payout when an independent third-party index meets or exceeds a predefined threshold (e.g. sustained wind speeds of at least 150km/h for 10-minutes or more). 

#3. Building new facilities (Construction) or acquiring existing operations (Mergers & Acquisitions (M&A))

Building new facilities 

Only 8.5% of large projects finish on time and on budget, as global trade disruptions and heightened geopolitical tensions have impacted the built environment supply chain and costs. When expanding internationally, businesses must ensure compliance with local construction regulations and mitigate risks of project delays or disputes. 

Acquiring existing operations

Managing transactional risks and identifying potential hidden liabilities is critical for businesses looking to expand by acquiring existing operations. 

Solutions: 

#4. Operation: Ongoing risk assessment 

Once the business becomes operational in the new location, ongoing risk assessment is critical amid a complex risk landscape with evolving geopolitical tensions, inflationary pressures, regulatory compliance issues, physical climate risks, supply chain disruptions, and cybersecurity threats. 

Solutions: 

  • Physical climate risks: Property Damage and Business Interruption (PDBI) insurance solutions, along with commercial general liability and product recall coverage, can protect against operational disruptions. 
  • Inflation: Valuation and risk finance optimisation services ensure that risk mitigation and transfer plans are cost-efficient with up-to-date asset values. 
  • Insolvency: Trade credit insurance (non-payment) can offer protection against economic instabilities.
  • Supply chain disruption: Cargo insurance mitigates the risk of shipping delays arising from port congestions, and businesses can also use Sentrisk, an AI-powered platform to map and take control of their supply chains.
  • Regulatory change: Directors and officers (D&O) liability insurance protects businesses and their senior leaders from liability exposures, for example, securities lawsuits, lawsuits alleging wrongdoing or harm, or cyber-related losses such as data breaches. 
  • Cybersecurity: Cyber incidents, such as the CrowdStrike software update outage, are becoming inevitable due to rapid innovation and growing cyber infrastructure. Cyber risk quantification, insurance and crisis management are an essential part of a robust risk management strategy to quantify and claim losses, which enable businesses to recover from cyberattacks. 

Finally, given the interconnectedness of the risk landscape,  Enterprise Risk Management (ERM) and risk insurability analysis can provide businesses with a comprehensive view of their risk exposures to inform mitigation and transfer efforts. 

#5. Exit: Divesting from overseas operations

Businesses must protect directors and officers from potential liabilities and manage transactional risks during divestiture. 

Solutions:  

  • D&O run-off coverage provides continued protection for directors and officers from litigation relating to events that happened before divestiture, even after the acquisition has been completed.
  • Seller-focused transactional risk insurance can ensure a clean exit by transferring risks such as misrepresentation or uncertainty over tax positions to a third-party insurer, eliminating the need to hold funds in an escrow. 

Managing people risk prudently for success

From project planning to operation, human capital is the key to success. Key considerations including attracting and retaining a resilient workforce, addressing talent shortages and skills gaps, and ensuring compliance with local labour laws and regulations cannot be overlooked.

To formulate a robust workforce strategy, experienced multinational human resource consulting experts can provide valuable cross-border guidance on talent assessment and acquisition, talent mobility, compensation and benefits design, and cross-cultural integration and employee engagement. 

The two case studies below illustrate effective risk management outcomes:

selected option

A global home appliances manufacturer was facing multiple challenges following acquisitions of brands across several markets, which included weak control and lack of synergy over insurance, adverse underwriting conditions and high premium costs, and difficulty retaining key talent.

Marsh McLennan provided end-to-end support by creating a more strategically aligned insurance management system along with key talent retention plans, KPI adjustments, and alignment on M&A deals. Leveraging market capacity in China, Marsh McLennan created a Global Insurance Program to integrate insurance across all acquired parties, helping the client achieve a more rational, cost-effective program structure.

Facing concerns over access to healthcare among key employees relocated to the United States to run a newly established plant, a Korean conglomerate engaged Mercer Marsh Benefits (MMB) to review their global health and benefits plan for these employees and their dependents. Following the review, the MMB team provided a detailed explanation of the US healthcare system and their benefits plan to the employees, providing them with the confidence to settle their families in the US.

Enabling Asia multinationals’ growth ambitions with robust solutions

Marsh’s Asia Client Services, comprising China Client Services, Japan Client Services, Korea Client Services, and Taiwan Client Services, provides the local expertise and global reach needed to support your international expansion. With our global network of more than 200 colleagues, including local risk experts speaking the same language as your country managers, and global governance and oversight to support your business in controlling your risk profile, we ensure seamless operations, robust risk management, and competitive insurance solutions tailored to your business’s needs.

Expand your business overseas with confidence

Partner with us to navigate complex global markets confidently and safeguard your growth ambitions.

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1 United Nations Trade and Development. Accessible at: https://unctad.org/publication/world-investment-report-2024

2 World Meteorological Organization. Accessible at: https://wmo.int/news/media-centre/climate-change-and-extreme-weather-impacts-hit-asia-hard

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Hao Zhou

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Keisuke Miura

Keisuke Miura

Senior Vice President, Head of Japan Client Asia Services

  • Japan

Sukjun Lee

Sukjun Lee

Chief Relationship Officer, KCS & MMC Collaboration Leader

  • Korea

William Lee

William Lee

Sales Leader, Senior Vice President

  • Taiwan