Risk Management in Emerging Markets Emerging markets pose different challenges f

Question

Risk Management in Emerging Markets

Emerging markets pose different challenges from operational to financial risks; yet emerging markets often reveal possibilities for diversification and economic growth. How might an organization considering operations in an emerging market alter its risk management framework for that market? What additional factors need to be considered and added to the COSO framework? Can any components of a typical framework be discarded? Write a 2- to 3-page memo to senior management outlining and validating the factors that need to be considered.

Explanation / Answer

The risk management framework typically will not differ from market to market but yes the framework will definitely give an overview of risks that are associated with the market. In an emerging market the organizations are prone to several risks since the emerging markets are prone to be dynamic and further the priority of risks chage by location. In order to manage risks in the emerging markets one has to have a sound knowledge of the local business laws and culture. They should continue to be cautious and vigilant. The organizations should also think on a long term rather than on a short term. Since the companies in emerging market aims only in growth, they will lack a long term vision. A short term vision will confirm a growth whereas a long term vision will only help the organization to overcome the risks associated with the organizations in emerging markets.

The additional factors that needs to be considered and added in the COSO framework are the factors that correspond to pro-activeness and forecasting. Yes, risks can be forecasted but the companies will have to take pro-active measures to overcome risks which the companies in emerging markets might try to oversee.

Hence the factors of Political instability, Government Subsidies and Legal Liasioning should be added to the COSO framework. In emerging markets the political instability is very important since the risks of running a business mostly depends on the political scenario of the specific country or a state. if the Government is not supportive then the organization will not be able to flourish. They will be in constant pressures of Government. These pressures might also pose threat to the future of the business.

No, the components of a typical framework should not be discarded since risks are always uncertain, all the measures that are given in the framework which when followed will only help the organizations to be successful in its growth. Hence the componets should not be discarded. They should always be considered and a thought should be given to the facts presented in the framework as well.

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