Covid-19 has strained, stretched and severed supply chains, prompting many companies to reassess their operations and relationships around the world. Leaders urgently need to know where their business is resilient and where it is not so they can effectively navigate the crisis.
Resilience, if you can measure it, is a solid indicator of which operations will recover quickly and fully from the global shock. With that in mind, my company has quantified, compared and ranked resilience in the 2020 FM Global Resilience Index. The annually updated ranking examines the resilience not of individual companies, but of the business environments of nearly 130 countries. This interactive online database gives companies a firm foundation of data to help guide business decisions such as:
• Where in the world to recruit suppliers.
• Where supply chain redundancy is most needed.
• Where to put one’s next plant, warehouse or office park.
• Where key customers need reinforcement against natural, economic or supply chain disruptions.
When it comes to siting operations, the traditional selection factors still apply—e.g., logistics, labor force, regulation, taxation and market opportunity—but the Resilience Index helps further ground and clarify choices as executives consider different geographies. The algorithm rolls up measurable attributes of a country’s economic, risk quality and supply chain resilience based on 12 drivers:
Each driver has quantifiable data behind it, whether from credible third parties like the United Nations, the International Monetary Fund, the World Economic Forum and World Bank or FM Global’s own client research.
My team has noticed that countries recognized for performing well in the pandemic—e.g., Norway, South Korea, Germany and Australia—are toward the top of the index. Norway is ranked No. 1 in the Resilience Index. Germany is No. 4, Australia is No. 17, and South Korea ranks 37th (still the top third).
The 10 highest-ranked regions in the 2020 Resilience Index, in descending order, are Norway, Switzerland, Denmark, Germany, Sweden, Finland, Luxembourg, Austria, Central United States and Eastern United States.
What can we glean from this information?
Making strategic decisions
I’m not saying you should move all your operations to Norway. Rather, it seems logical that countries highly ranked for the resilience of their business environments can be expected to show a robust pandemic recovery. I’d point you especially to several drivers in the Resilience Index that relate to good government: political risk, control of corruption, urbanization rate and corporate governance. Natural hazard risk quality also relates, taking building codes and standards and their enforcement into account, as well as how well leading businesses in a country choose to protect their property.
When you’re planning around pandemic recovery, these indexed variables may lead you toward safer bets for extending supply chains or other operations. Anticipating pandemic recovery this way also helps you make better decisions about when and how to reopen/restart. It may even offer clues about the severity of a second wave.
Examples of how to use the index and gain pandemic-rebound insights
The classic case for using the Resilience Index is deciding where to consolidate operations or build a new facility. Let’s say you need to build a plant in Asia to serve customers on that continent while taking advantage of lower costs, abundant skilled labor and a favorable regulatory climate. Before settling on a location, you see that two of your candidate countries are in different quartiles of the Resilience Index. The lower-ranked country faces a higher natural hazard risk—of earthquakes, for example—and maintains far less control over corruption. Whether or not these are the deciding factors in your decision, these facts are good to know. You can compare any two countries in the index like this and see how they’ve fared overall and in each driver for the past five years.
Turning our focus to the pandemic, let’s say you do business in one of the industries hardest hit by the Covid-19 crisis—hospitality—and you lead a global hotel chain. How do you forecast revenue and plan for reopenings? Well, Resilience Index rankings generally indicate higher resilience in North America and Northern Europe than in Central and South America. The U.S. outranks Chile, the highest-ranked South American country, in 9 of the 12 drivers. Add that data to your knowledge that the pandemic hit Europe and North America first and has been on the rise in Central and South America. Information like this may help you plan for resurgences of tourism at your key properties and guests from your key markets.
Companies can also benefit from using the index for procurement decisions. A pharmaceutical company we work with, for example, uses the index to vet suppliers of hard-to-find drug materials, some of which come from very risk-laden countries. Other companies create their own customized data models using a subset of drivers from the public index—the ones that most apply to the business decision at hand.
Certainly, the more data you put behind your decisions the better. And if you could measure resilience throughout your business and supply chain, you could make sound choices that would help you better ride out the pandemic and experience a rapid and robust recovery. Now you can.