Can Global Instability Damage Your Business?
If you're wondering whether African disease outbreaks, Ukrainian instability and Syrian civil war could have an effect on your business, you're not alone: A September 2014 survey of business executives by consulting firm McKinsey & Co. discovered that 80 percent of responders believe geopolitical instability in the Middle East and North Africa is either very likely or extremely likely to upset the global economy in the next year. And the executives most likely to be worried are those in North America and Europe, due to concerns about tensions between Ukraine and Russia.
Andrey Akselrod, co-founder of the New York-based translation technology firm Smartling, keeps a close eye on Ukraine even when he's not there overseeing Smartling's facilities abroad. Akselrod, who was born in Ukraine and has lived in the United States for 20 years, staffs two offices in Kiev and Dnepropetrovsk with about 40 software development and support staff. The Eastern European location helps him tap Ukraine’s technical talent and service customers in European time, he says.
The location also keeps him concerned about what happens if the turmoil in the eastern part of the country expands to the west, where Smartling’s offices are located. “We’re constantly evaluating the risks,” Akselrod says. “I’m watching very closely, keeping track of what’s going on and what the problems are.”
In addition to devoting some of his time to monitoring the situation, Akselrod has also invested his and his managers’ energies in developing a business continuity plan to deploy in the event the unrest spreads to the cities where he operates. That effort consists of reassuring employees that Smartling will be there if conditions deteriorate, plus making arrangements to move employees to places of safety in or out of the country. They’ve also developed plans for having employees work from their homes in the event that streets become unsafe for commuting.
“Never in my life did I think I would have to do continuity planning about an actual war,” Akselrod says. He hopes that the plan will not be needed, and reports that on a recent visit Ukrainians were optimistic about moderating tensions.
Smartling intends to continue to do business in Ukraine if possible, Akselrod says, because the country has a well-educated technical workforce for which he doesn’t have to compete with employers in New York City or Silicon Valley. And, if not Ukraine, it would be somewhere else where problems might arise. “It’s a global world and more and more companies have people working for them around the world,” he says.
Global Franchising Fallout
Andy Wiederhorn, chairman and CEO of Beverly Hills-based restaurant chain Fatburger, takes a similarly flexible approach. The company’s 200 global locations include franchised restaurants in Iraq, Turkey and Egypt, all scenes of protests, bombings and other instability in recent years. Franchisees have in some cases responded by closing specific locations, such as one in Istanbul’s Taksim Square, because violent protests and other unrest keep customers away.
To a considerable degree, having a retail location that requires lots of traffic means being exposed to potential for unrest, Wiederhorn says. “When political instability rises, you see demonstrations and protests flock to high profile locations. Where a high profile location normally would be the greatest location, it could turn into a liability.”
Fatburger has also slowed down development plans for new stores in some affected areas. However, Wiederhorn says that his company attempts to look beyond the headlines and anticipates that unrest won’t last forever. “You have to have a long-term view of your business relationship country by country in terms of your strategy,” he says. “If your long-term strategy is that you want to be in this market, then you’ve made that commitment and you have to weather it and stay the course. You may not stay with a particular location if it becomes more trouble than it’s worth to deal with. But it doesn’t mean you’re exiting that country.”
Thus far, the effect of global instability on the business operations of these entrepreneurs appears to be limited to investing in planning, in Akselrod’s case, and for Wiederhorn, being flexible with franchise partners who have to modify expansion plans due to difficult circumstances. But neither say it means they're retreating to the United States.
In fact, Wiederhorn suggests, regional instability can eventually boost prosperity for businesses that stay the course. “In these markets, there’s more opportunity than there is risk,” he says. “As things calm down, there will be tremendous further growth opportunities as the countries develop.”
According to the executives McKinsey surveyed, however, global instability is more likely to cause trouble than to create opportunity. And they expect matters to get worse before they get better. In September, just 39 percent anticipated improved global economic conditions by early 2015. That’s down from 59 percent when the question was posed in June.
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