Tuesday, October 25, 2011

Risk Impact of Global Communications

            There are significant communication risks inherent to multinational corporations’ business operations, some of which include data security, logistical, legal and political issues, and the digital divide/21stCentury skills. These risks can threaten the success of the business relationships in the global business world (Wei, O’Connell, Loho-Noya, 2010).      
Digital risk, “a term describing the risks arising from increased dependency on information technology (IT) systems and digital processes,” (Digitally challenged, 2005) is today a major concern for multinational corporations. IT risk is one of the most significant threats posed to international corporations’ operations, with 48% of senior risk managers reporting it represents a high or very high threat to their businesses (digitally challenged, 2005). Many firms have reported significant financial damage due to security breaches such as hacking. Almost 60% have suffered financial losses as a result of major system failure, with many experiencing three or more outages within a year.  55% reported that the sophistication of hackers and other cyber criminals as a major difficulty in managing digital risk. The emergence of new, organized attacks on corporations combined with increasingly professionalized hackers means the cost of security breaches will continue to grow (Digitally challenged, 2005).
            In addition, mobile workforces are expanding the risks. Remote working, wireless networking, is adding significantly to their exposure to electronic threats. Traditional security solutions, such as firewalls, are becoming less effective as more employees communicate using open networks and carry sensitive data on portable devices. Outsourcing is adding to the burden as well. The risk is significant enough that 69% of chief risk officers are now involved in the selection of an outsourcing provider (Digitally challenged, 2005).
            In emerging countries, the rapid adoption of communication technology such as the internet is creating opportunities for these countries.  A good example of this is India. India is now a major player in software development. The internet played a key role in enabling this transformation by “collapsing geographic distances, allowing India’s talent to compete on the same footing as programmers in the established economies” (Fonseca, 2010). This” flattening of the world” has allowed everyone to compete globally.  Many countries are making strides to address the “21st Century skills” challenge. The Economist clearly defined the problem: “. . . as the price of telecommunications and computers go down, the real reason why the poor will not have access will be evident: They lack the skills to exploit it effectively” (as cited in Fonseca, 2010). Another example is Uruguay. They have provided each student with a laptop to support learning skills. Costa Rica has used technology-enhanced learning for over two decades. The impact is evident: Costa Rica has been able to attract important technology-related foreign direct investment. In fact, today it is one of the leaders in the export of high-tech products in Latin America. This country’s leaders were convinced that the digital divide must be bridged. Even though some countries are tackling the problem, this “digital gap” still stands as an important risk for multinational companies (Fonseca, 2010).
Of course, new opportunities offered by the use of this technology also generate new risks and vulnerabilities caused by a lack of cyber security. For example, 95% of email traffic in developing countries is spam. This level of spam discourages people from using email and reduces user confidence in any online activity. Multinational corporations that are seeking to do business in such countries, either by outsourcing or investing, have to be certain that the information and communication technology-based capabilities they require are going to be available and secure (Brechbuhl, Bruce, Dynes and Johnson, 2010).  
            Intellectual property (IP), patents, trademarks, copy-rights, and trade secrets, is another risk associated with multinational corporations. Some countries have limited IP regulations and some countries have regulations in place but court enforcement is poor. Plagiarism or copyright infringement in the US is viewed as “borrowing from the best” or “copying with pride” in some countries.  Peter Richardson, Pfizer’s general patent counsel, reported “China doesn’t have a history of patent enforcement. They’ve enacted laws that provide for patent protection, but not many cases have been litigated.” (Cherkis, Meyer, 2003). Argentina’s courts favor their own companies. Japan’s patent law required that companies provide “appropriate compensation” for discoveries made by employees and there have been several high-profile lawsuits involving this requirement.
Mitigating the risks includes focusing on the contract between the client and host country and developing an effective relationship. Being aware of issues before negotiating a contract is a key issue. Country-analysis, “the study of conditions, situations and events that might impact favorably or unfavorably on conducting business or investing in a country,” (Calhoun, 2005) has become a common analytical process to identify risks associated with the host country. Factors that are considered include but not limited to trade, monetary policy, property rights, regulation, black market, inflation, socioeconomic conditions, bureaucratic quality, political risk, economic performance, credit rating, access to bank finance, access to short-term finance, access to capital markets, discount on forfeiting, wage and price policies, corruption, law and order and ethnic tensions (Calhoun, 2005). It is clear that the due diligence process becomes a critical factor. Vigorous enforcement of the IP by both countries is extremely important. Attempts to educate a local culture can be difficult but it has to be accomplished. Patience is required as change will be a long process. Cooperation between security and business groups moving to emerging countries helps the corporation to be proactive in managing risks and threats. Effective staff loyalty-building is one way to protect intellectual property. One study showed that 97% of the businesses surveyed took measures to improve personnel loyalty. The most popular method, 84% of the companies, was the use of financial incentives. About 80% of the businesses offered their employees training opportunities or other job development related incentive. Other methods use technical protection. Some common methods include coding or scrambling the information so that it can only be decoded and read by someone who has the correct decoding key (encryption), security keys (dongles), or making program more difficult to reverse engineer (obfuscation). Technical protection can also mean incorporation of specific ID codes into software programs or other documents. Such codes can be used to prove the copyright (Paallysaho, Kuusisto, 2011).  The old adage “what gets checked gets done” should not be forgotten. Compliance checks are an integral component to risk management. Repeated third party security audits are recommended (Wei et al., 2010). Common controls to minimize risk include defining policies, responsibilities, and punishments or penalties in the contract. Consequences of non-compliance can include corporation fines up to $1,000,000, individual fines up to $250,000.  Other violations can include denied export privileges, excluded from trade and fines (Martinez, 2007). Out of necessity, corporations have adopted a wide variety of mechanisms to minimize the loss of their IP.
Another risk involves societal cultural differences. Problems that occur when firms from different countries join forces can cause alliance instability. This is evident in the way high-context and low-context cultures communicate. When communicating between cultures, it is important to understand what type of culture you are as well as what culture you are communicating with. High-context cultures use more than just words to send a message. Anthropologist Edward T. Hall described high-context cultures as relational, intuitive, collectivist, and contemplative. The Middle East, Asia, Africa, and South America are considered High-Context. Low-Context regions are North America and Western Europe, where logic, individual, linear, and action-oriented communication is valued.
A leader with a global mindset will understand that high-context cultures put great importance on harmony and trust. According to Robbins (2007) “What may appear, to an outsider, as casual and insignificant conversation is important because it reflects the desire to build a relationship and create trust” (p. 390). When relationships are built they are built around these concepts. Low-context cultures rely less on trust and more on contracts and the legal meaning of words. Low-context cultures view contracts as the logical end of a negotiation while high-context cultures may view them as a lack of trust. 
Other cultural barriers include semantics, and connotations. When communicating, a corporation must be aware of the meanings or implied meaning of words being used. An example of not knowing how to translate the meaning and just translating the words was the “Got Milk?” advertisements. When the advertising billboards were put up in Mexico, “Got Milk?’ translated into “Lactating?” The same can be said about hand signals. What Americans would use as an “OK” sign is equivalent to giving someone the middle finger in many Islamic countries (Robbins, 2007, p. 389).
Coordination and cooperation depend on communication, but communication is ineffective unless participants “share a system of meaning so that the actions each undertakes in response to discussions with others closely resembles the expectations of all the discussants” (Murray, 2000). Without this shared understanding, coordination and cooperation become impossible.  When understanding is widely shared, it is called “strong culture.” This corporate culture can be passed across ethnic and national cultures and can be developed throughout a multinational firm.  This strong culture can be achieved by participants “shared into the culture; they must be transformed from participants into colleagues” (Murray, 2000). The following  are the necessary steps to develop colleagues: Interrogation – intensive interview process prior to hiring that identifies the cultural-fit of the potential participant; instruction – business cannot select for technical skills with the same determination that they used in the cultural fit, thus, training recruits will be necessary; information – feedback. This feedback provided to participants needs to be fast and unambiguous so that the participant can understand the implications for subsequent behavior; inspection – participants must be inspected to ensure they are using the information to further enhance performance. Rewards for the participant can be tied to this element; involvement and inclusion – as the participant accrues experience and becomes effective, capitalize on that by involving him or her in increasingly important decisions that have payoffs that are broader in their organizational scope. Alan Murray forecasted in his book, “If each of these steps is completed successfully, the business will comprise a group of colleagues rather than an atomized assembly of individual contributors” (Murray, 2000).
Increasingly, the design of business organizations reflects the balance needed between the social and legal context in which the business must operate, the overcoming of technological constraints that constitutes a key competitive advantage of the business.  Social and legal constraints compel the business to be locally responsive, while overcoming technological constraints promotes the pursuit of global success.  Achieving a global presence requires sophisticated organizational and cultural knowledge. It is important to balance different aspects of risk management to capture the holistic character of managing an international corporation.

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Calhoun, M. (2005). Challenging Distinctions: Illusions of Precision Assessing risks of Doing business in Host Countries. Retrieved from EBSCO.
Cherkis, C., & Meyer, P. (2003). Sharing IP Sharing Risk. Pharmaceutical Executive .
Digitally challenged. (2005). Economist Intelligence unit business Europe .Retrieved from Business Source Premier.
Fonseca, C. (2010). The Digital Divide and the Cognitive Divide: Reflections on the Challenge of Human Development in the digital Age. Information Technologies and International Development .Retrieved from EBSCO.
Martinez, M. (2007). Risk Management in restricted Countries. Intel Technology Journal .
Murray, A. (2000). Strategic choice under Knowledge Competition. In Thunderbird on Global Business Strategy (p. Chapter 3). Retrieved from Phoenix University ebook library.
Paallysaho, S., & Kuusisto, J. (2011). Informal Ways to Protect Intellectual Property IIP) in KIBS Business. Innovation: Management, Policy and Practice .Retrieved from EBSCO.
Robbins, S., & Judge, T. (2007). Organizatinal Behavior. Upper Saddle River, NJ: Prentice Hall.
Wei, J., O'Connell, J., & Loho-Noya, M. (2010). Information Technology Offshore Outsource Security Risks and Safeguards. Journal of Information, Privacy and Security .Retrieved from EBSCO.

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