How High-Tech Manufacturers Can Prepare for Global Risks
In a globalized economy, high-tech manufacturers based in the United States increasingly have suppliers, manufacturing plants and customers located throughout the world, which creates new and unseen risks to manage. The wrong type of event can imperil a company's financial health, and even its long-term viability. Luckily, high-tech manufacturers can mitigate their exposure from international operations through careful study and planning.
High-tech manufacturing is a crucial component of the U.S. economy. From the smartphones in our hands to sophisticated medical equipment that saves lives, technology has advanced dramatically over the past decade. To operate internationally, these manufacturers of high-tech components should understand and prepare for five key classes of global risk.
1. Global Product Liability
High-tech manufacturers with overseas operations must constantly watch for defective or counterfeit components. Because of the complexity of international supply chains, precise tracking of counterfeiting activity is difficult. However, according to the Semiconductor Industry Association (SIA), counterfeiting costs U.S.-based semiconductor manufacturers $7.5 billion annually in lost revenue1, while global information and market research company IHS noted the five most commonly reported types of counterfeit semiconductors represent $169 billion in lost revenue per year for the global electronics supply chain2.
2. Overseas Safety, Injury and Illness
With global operations, international travel often is the norm rather than the exception. Travel can range from highly developed countries with excellent medical infrastructure to less-developed countries where language and medical facilities can pose a challenge. When employees travel overseas, they can incur risks to their health and wellness. If an employee is injured while traveling overseas, it is important to consider how the policy will respond. In addition, physical safety and security factors in some parts of the world may warrant extra precautions for employees traveling to those areas.
3. Global Supply Chain Interruption
Doing business globally involves managing complex global supply chains, often stretching across oceans and continents. Interruptions to these supply chains can lead to costly slowdowns, impacting a high-tech manufacturer's financial health. Manufacturers should consider and plan for the following risks:
- Critical Equipment Failure – A piece of equipment (or a component part) sourced internationally has the potential to be a single point of failure—a bottleneck that can cripple production.
- Catastrophic Weather – Keeping a manufacturing plant operating at full capacity requires a dependable flow of materials. A plant can be idled unexpectedly when, for example, a tsunami in Japan puts suppliers out of business or volcanic ash high above Europe grounds the air transport that is scheduled to deliver materials to a manufacturer.
Political Turmoil – Changes in government sometimes can result in new government policies that can impair current trade deals or delay deliveries. A change in administration could result in regulations that make doing business difficult in the country.
4. Global Long Distance Transit
There are a variety of options available to manufacturers for transporting goods—boat, train, plane and truck—and each of these modes of transportation poses risks that must be managed. There is risk of loss from both damage and theft when parts, components and products are transported over long distances. Shipping practices/protocols, security standards and even the type of packaging materials used all can play a role in mitigating the likelihood of damage or theft during long distance transit. Adverse weather events (e.g., hurricanes) also can pose a risk, particularly when high-value products are being shipped. Risks related to intermodal shipping also should be considered, including handoffs and transitions at ports, airports and international borders.
5. Global Insurance and Compliance with Foreign Unlicensed Insurance Law
International operations and global exposures make it critical for companies to ensure that their insurance policies comply fully with each country's laws and regulations. This aspect is a critical, but often overlooked, part of purchasing insurance coverage for global exposures, and more foreign country regulators and tax authorities now are paying closer attention to it. In many circumstances, carriers cannot provide insurance to companies or for property located in jurisdictions where they are not licensed or admitted to provide such insurance.
Since unlicensed insurance is a complex issue, with laws and regulations changing over time, companies should seek a thorough review of global exposures and local laws to protect their financial interests.
To learn more, download our Travelers Technology Risk Advisor on how high-tech manufacturers can prepare for global risks.