FM Global Vice President and Client Service Manager Asia Tan Hian Hong argues that natural disasters do not stop during a pandemic. The eye on the horizon therefore, should not only factor in market recovery, but also on the ever-present sources of risk to business continuity.
By Tan Hian Hong
While Asia’s brightening business landscape gives hope for a better global economic outlook this year, a major takeaway from 2020 is that there is a need to shore-up risk mitigation strategies to avoid further business interruption and preventable losses.
Asia, which took an early battering from the pandemic in 2020, is in the beginnings of an economic recovery. China, the region’s largest economy, has ousted the US as the lead destination for foreign direct investment while also recording strong economic results. This is followed by a show of economic resilience by other Asian countries such as South Korea and Japan. In Southeast Asia, financial hub Singapore, as well as Thailand and Vietnam, are not far behind.
Prior to the pandemic, some Asian manufacturing businesses were already taking steps to build up supply chain resilience by diversifying locations and routes to market, as well as taking steps to guard against cyber threats and building contingency plans to shield themselves from risks posed by natural hazards.
In spite of a hardening insurance market, the pandemic has only reinforced this focus towards recovery and growth. Now, the challenge falls on the chief financial officers (CFOs) and risk managers to look past the current spike in risk transfer cost and continue to strengthen supply chain resilience by planning ahead.
As we head further into 2021, business leaders might keep in mind a few factors as they strategise their roadmap to recovery:
Systematic approach to risk management
CFOs should take a systematic and pragmatic approach to risk management, supported by a business impact analysis (BIA) to understand how their revenue-generating activities can be protected from a range of ever-present business risks including natural catastrophes and the threats cyberattacks pose to their operations and data.
The key to recovery will be to protect against further disruption and safeguard gains achieved through transformation. This may seem obvious, but not all companies have done this, yet this remains a crucial step in anticipating, planning and preparing their businesses against any other rude shocks in the future. Just like a health check-up, those who do this BIA regularly will be better prepared to pivot their business focus and protect their interests in case a future crisis hit.
Diversify supply chains to spread the risk
The fluid geopolitical currents that existed before the pandemic hit, some due to China-US tensions, meant that many global businesses were already in the process of diversifying their supply chains beyond China, into markets in Southeast Asia such as Vietnam. This was an early-mover advantage for manufacturing operations who had developed alternative economic base and vendor ecosystems to support them elsewhere when the pandemic first broke in China. This ensured that they had the ability to quickly switch gears. Therefore, supply chain diversification continues to make sense as a way to spread risk across geographies and build in more capacity and resilience to keep businesses operating when disaster strikes.
The ongoing pandemic is prompting businesses to review their supply chain options and cast their eye over markets close to China including Vietnam, Malaysia, Thailand and Indonesia as well as consider onshoring, wherever those are cost effective.
Plan for the unexpected
Even with vaccines on the way, the reality is that most businesses will not be operating as before for some time. The efficacy of vaccinations, their rollout and systems around their verification will take time to make an impact. In the meantime, other risks will continue to pose challenges to business operations: we can expect another typhoon season, floods and earthquakes, as well as cyber threats. Why? Natural disasters do not stop for a pandemic.
According to a recent report the world’s top ten costliest weather disasters in 2020 amounted to USD 150 billion (SGD 199 billion) worth of insured damages. The report cited a study that noted that these weather events reflected the long-term impact of climate change. These weather events alone had killed 3,500 people and displaced more than 13.5 million people in that same year.
Most businesses are still operating semi-virtually, so preparing for future black swan and grey rhino events remains important to the region’s recovery. The year 2020, with a most far-reaching global crisis in recent memory, has shown us that the unthinkable can happen, making business continuity planning a business essential. This is where business leaders need to adjust their focus to ensure their operations remain uninterrupted in the face of a range of potential risks.
The eye on the horizon should not only factor in the pandemic situation and its recovery, but also on the ever-present sources of risk to business continuity. The lesson from 2020 is to ensure we are taking the steps to ensure our businesses can grow while building in resilience for when we need it, because the current uncertainty demands prudence.
(Ed. Featured image courtesy of Photographer Akshar Dave.)