Governmental Risk

Source of Influencers

Internal
Connections within your group of companies, or purchasing specifications generated internally, or decisions made at board level can all lead you to operate in certain countries.

External
Government actions or policies can act as a market catalyst, either supporting, developing or opposing industries, or they can lead to economic or political instability, which would disrupt your supply chain.

Organisational Consequences

Operational
Possible disruption in the movement of your goods, due to sanctions and embargoes. Changes in reciprocal/ non-reciprocal arrangements with other countries can also have an impact. Suppliers may face sudden barriers to exporting, or an inability to fund sudden price increases.

Financial
Government policy can have a massive impact on the cost of your items, due to inflation, FX volatility, tariff-increases, levies, or tax increases, etc.

Reputational
Social media will be quick to judge organisations seen as 'supporting' governments with poor human rights records. Campaigns can quickly spring up to whistleblow and encourage boycotts of an offending company's products.

Sustainability Consequences

Economic
The wider economy can impact the viability of a supply chain, limiting potential opportunities to make positive social and environmental change.

• Encourage your key suppliers to participate in the CIPS Sustainability Index, which will help identify any potential risks in this area
• Use your available spend data to develop a comprehensive view of all your key suppliers and supply chain to identify which goods/services are currently sourced in high risk geographic areas
• Ensure your organisations local knowledge is taken in to account when selecting suppliers and establishing the most secure logistics approach; adopt the lowest risk routes if forced to cross a high risk area
• Ensure you have access to and regularly consult related external sources of information for the countries/regions you source in, such as the quarterly CIPS Risk Index, powered by Dun and Bradstreet, or the country-specific Dun & Bradstreet Risk reports, in order to keep abreast of developments in regions that can affect your supply chain; these can include factors that disrupt logistics routes, or affect currency exchange rates
• Share this detail with selected suppliers as appropriate
• Develop expertise in appropriate geographic regions with your buying and category team, to ensure that everyone – including your key suppliers - has an awareness of the challenges associated with sourcing in these geographic areas
• Be wary of entering into long term supply contracts
• Use the expertise within and if necessary outside your organisation in respect of currency management
• Be aware that international trades in your own currency can still carry a potential supply chain risk
• Ensure you are contractually sound in respect of currency fluctuations regardless of base currency used
• Where necessary engage with internal/external expertise to ensure contractual approach/wording is sound
• For contracts where the payment is not in your local currency ensure forward buying of relevant currency has been considered
• Ensure currency exposure is taken into account in quotes/tenders your organisation is preparing that involve the purchase of internationally sourced goods/services
• Use your available spend data to develop a comprehensive understanding of the key suppliers you directly source where there is a potential for secondary currency exposure i.e. your supplier to their supplier(s)
• Hold a review with relevant key suppliers to understand how they are managing their currency risk and mitigating/avoiding any secondary risk to yourselves
• Ensure you and your buying team consider potential changes in trading terms and conditions as part of their order placement due diligence process
• Review the relevant contractual clauses with key suppliers to ensure you have not built in exposure in current trading agreements
• Develop a series of reliable sources/knowledge links to help you regularly review changes in the areas of tariffs and trade.

• Buy individual country risk reports
• CIPS Risk Index
• Cross border risk guidance
• Government advice on country sanctions, embargoes, and restrictions
• International Chamber of Commerce - incoterms, trade finance, certificates of origin, and more