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Our series on PESTLE risk monitoring continues with an exploration of the “S”—Socio-cultural—and how it influences supply-chain and third-party risk to global organizations.
As organizations become more reliant on complex networks of suppliers and other third parties, the risks they face also expand. But in order to capture the big picture on risk, organizations need to focus on the small picture—at least when it comes to socio-cultural risk.
Given the scale of today’s supply chains—and growth goals that see organizations expanding operations into new markets—failing to understand global trends, as well as local socio-cultural norms, exposes organizations to considerable risk. What socio-cultural risks are most relevant to you? It depends on a variety of factors—from the specific countries in which your company has operations to the types of products and services you offer.
Most socio-cultural risk factors fall into one of three categories: Demographic, Social/Cultural or Beliefs/Attitudes.
As we’ve seen in recent years, for example, immigration is often linked to forced labor which poses a significant reputational risk when uncovered in a corporate supply chain.
These risks aren’t limited to emerging markets. Brexit, for instance, is already influencing purchasing behaviors, which could negatively impact company profits.
While these factors seem rather innocuous, the risk is real. Consider, for example, the Chinese custom of guanxi, which is defined as “the system of social networks and influential relationships that facilitate business and other dealings.” Traditionally, gift-giving is part of guanxi, but companies must approach it cautiously due to regulations like the U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act. Knowing that social-cultural risk enables companies to avoid improprieties while still building these critical relationships
Addressing socio-cultural risk can be a major challenge for global organizations. Engaging with an entire supply chain—not just the first tier—can be impractical, given the scale of modern supply chains. A more practical approach is to focus on your most important suppliers and particular “hot spots” in the supply chain, such as subsectors like mining or emerging markets that are particularly prone to socio-cultural issues.
By tailoring your approach to the most relevant social issues and establishing a proactive process for monitoring for risk indicators in the news, social media, and other key data sources, you enhance your ability to anticipate and mitigate risk—and keep your company on the right path to growth.