International Journal of Management, Knowledge and Learning, 3(1), 125–141
Treading the Risks in International
Management
Amol Gore
University of Mumbai, India
Pekka Kess
University of Oulu, Finland
Multinational companies are making significant investments in high-risk de-
veloping countries lured by the lower factor cost and growth potential. Much
research has deliberated on the risks related to such international business,
and in particular the country risk. However, there are only a few empirical
and theoretical studies that examine the managerial response of multina-
tional companies to the contingencies in international management. This pa-
per aims to fill this gap and specifically addresses the question of why a
tighter integration of a subsidiary is still desirable despite the progression
of agile networks. The empirical results of a comparative case study are dis-
cussed and a framework that articulates the dynamic approach of the parent
company headquarters is presented. A map of factual events was created
and juxtaposed with the hypothesized reasoning behind the observations.
Keywords: international management; high-risk; multinational; headquarters;
case study
Introduction
Multinational companies are choosing to make large investments in the de-
veloping countries and according to the recent UNCTAD statistics (2013)
this investment has grown by several times in the period between 2003
and 2013. Such investment can be regarded as result of the global strat-
egy of companies (Buckley, 2007; Hansen, Pedersen, & Petersen, 2009;
Schoenherr, et al., 2012) or as a symbol of the deepening globalization (Far-
rell, Memes, & Schulz, 2004; Matthyssens, Pauwels, & Quintens, 2006;
Kagitci, Vacarelu, & Fratila, 2013). Actually, it is more about the oppor-
tunities created by entering the foreign markets and being able to gener-
ate new knowledge or achieving savings through lower labour costs, since
many companies that claim steps toward adopting a global strategy actu-
ally differ in the understanding of terms like ‘global.’ A broad definition of
globalization – ‘a process leading to greater interdependence and mutual
awareness [. . .] among economic, political, and social units in the world’ –
would suggest that globalization has a long history accompanied by a sharp
rise in the income inequality between the West and the rest of the world
www.issbs.si/press/ISSN/2232-5697/3_125-141.pdf
126 Amol Gore and Pekka Kess
(Stiglitz, 2006; Jones, 2010; Vogli, 2013), whereas some prefer the ontol-
ogy to be arbitrated to India, China, and Russia or even retain continuity
on a platform where multinationals rarely had to adjust or innovate their
strategies in response to the competition from locally-owned firms, due
to the limited competition. Nevertheless, as Bartlett and Ghoshal (2002)
suggest, managing risk is one of the primary objectives of firms operat-
ing internationally and often such endeavours are fraught with difficulties.
Companies can be affected in unexpected ways leading to huge problems
and losses as they are exposed to a variety of risks that Andersen and
Schrøder (2010) categorized as strategic risks, operational risks, economic
risks, and hazardous risks. Theoretically, a company should link risk man-
agement with the investments and the growth decisions, and risk man-
agement should be treated as a strategic business process wherein the
top management assesses the consistency of the business activities with
the stated strategic objectives. However, in practice, managers may make
decisions for which they believe are strongly supporting the firm’s strat-
egy; however, oftentimes that is not the case. Challenges emerge because
few managers understand the full demands of the company’s strategy and
its implications for international operations (Lovallo & Kahneman, 2003;
Klohs, 2012). In addition, the process of globalization is not uniform across
all industries and there are substantial differences in the extent to which de-
veloped and developing economies have been integrated into a single global
market.
Thus, we infer that there is a need for an overarching approach in order
to comprehend the enterprise-wide risk instead of splitting the risks. Much
research has deliberated on the risks in international business, country
risk in particular, as well as the level of political and economic uncertainty,
which can impact the investments. Some studies of country risk analysis
and assessment have also surfaced; namely, a country risk analysis rep-
resenting the potentially adverse impact of a country’s environment on a
multinational corporation’s cash flows and the probability of loss due to the
political, economic, and social upheavals in a foreign country (Hallikas, Vi-
rolainen, & Tuominen, 2002; Vij & Kapoor, 2007). However, there are only
a few studies that examine the managerial response of the multinational
companies; therefore, in this paper we have brought to fore the cases of
two prominent European multinational companies that are treading the risks
in their India operations. The significance of India is a key aspect to con-
sider, since it has been ranked as a promising country for business oper-
ations; furthermore, the Finance Minister of India has recently pitched In-
dia as an attractive investment destination with imminent reforms (Chidam-
baram, 2013).
This paper focuses on the following two research questions:
International Journal of Management, Knowledge and Learning
Treading the Risks in International Management 127
1. How companies respond when faced with risks and challenges of
international management?
2. Why a tighter integration of a subsidiary is still desirable despite the
progression of agile networks?
Initially, we included the relevant literature review and then proceeded
with the section on empirical research. The results of the comparative case
study have been analyzed and a framework has been developed.
Literature Review
A substantial portion of the international management theory focuses on
the established multinational corporations and since risk is inherent in such
international ventures, there is extensive literature available on risk man-
agement across disciplines such as finance, economics, strategic manage-
ment, supply chain management, and international business. However, the
existing literature is more normative and contrasted by positivistic assump-
tion shaping the qualitative approach with interview-observation approach
presented in this paper. At the same time, it is worthwhile to review the
literature based on the fact that firms today are engaging in international
business activities earlier in their organizational cycles and the existing
guidelines can lead to a framework.
In today’s dynamic markets we are facing unprecedented turbulence;
therefore, uncertainty can be regarded as the key risk driver. This uncer-
tainty coupled with complexity within a supply chain gives birth to chaos
(Childerhouse et al., 2003; Lee & Jung, 2013). Often the managers fail
to develop a proactive approach, due to the fact that if a risk never ma-
terializes, the expenses incurred on risk assessment and management
activities are hard to justify to the top management. Altay and Ramirez
(2010) report that despite the risks, 95 percent of the Fortune 500 com-
panies are not equipped to manage a disruption that the company has
not previously experienced. Moreover, the country risks ripple down from
the macro level to the company level as embodied in the strategy, rela-
tionships, collaboration, operations, cultural patterns, and so on (Cavus-
gil & Deligonul, 2012). In order to better understand the manifest risks,
it is imperative to establish a process by tracking the risk-exposure from
the country to the company level in the context of the prime contractor’s
global supply network. The recent global financial crisis has significantly
raised the research interest in the corporate risk disclosure around the
world and triggered the regulatory reforms and responses from various gov-
ernment agencies. Risk disclosure covers a broad set of information on
risk sources, as well as means of risk management varying in location,
scope, and nature (Dobler, Lajili, & Zéghal, 2011; Gates, Nicolas, & Walker,
Volume 3, Issue 1, 2014
128 Amol Gore and Pekka Kess
Table 1 Additional Review for Risks in International Management
Authors Focus Area
Wade (2012); Ristuccia (2013) Strategic risk management
Wyk (2010); Monro (2011) Political risk
Lodh and Nandy (2008) Country risk
Hult, Craighead, and Ketchen (2010) Real options perspective
Casson and Wadeson (2012) A new model of the multinational enterprise
as a coordinator of supply chains
2012). In general terms, risk disclosure shall reduce the information asym-
metry between the managers and the outsiders by providing the users of
financial reports with information on the risks a company faces and on
how these risks are managed (Linsley & Shrives, 2006). Still, in practice
there is only piecemeal evidence on the attributes and determinants of
risk disclosure. According to Dobbler et al. (2011), an international inves-
tigation of risk disclosure is missing and is highly warranted. Therefore,
when considering a more objective conceptualization of risk, we can iden-
tify the definition of risk as a chance of danger, damage, loss, injury, or
any other undesired consequences (Harland, Brenchley, & Walker, 2003);
furthermore, it should be noted that risk can include both quantitative and
qualitative losses (Manuj & Mentzer, 2008). For example, the quantitative
losses may be lost sales due to stockouts, while the qualitative losses may
be the loss of brand equity or the termination of a business relationship.
Miller (1992) highlighted that the risks of firm internationalization cannot be
represented with a single dimension nor with multiple independent dimen-
sions, but instead must be seen as multiple, interdependent concepts. On
the other hand, both Cheng, Hou, Ho, and Westerlund (2011), and Oetzel,
Bettis, and Zenner (2001) have preferred to include the detailed compo-
nents of country risk although acknowledging that such risk measures are
poor indicators of significant risks. Many additional references that allude
to or cite the aspects of risks in international management are displayed
in Table 1. Real options theory represents a promising theoretical perspec-
tive with which to evaluate the relationship between international opera-
tions and organizational risk, while the supply chain viewpoint dwells on
different types of risks such as supply risks, security risks, macro risks,
and so on.
When companies operate in unfamiliar environments abroad, they are of-
ten exposed to new types of risks and complexities that can threaten busi-
ness performance, as well as mask new opportunities. India, in particular,
is rated as a high risk country with high political risk, economic risk, and
socio-cultural risk; however, the prospects for conducive, corporate growth
coupled with rapid infrastructure development lure the management to con-
International Journal of Management, Knowledge and Learning
Treading the Risks in International Management 129
sider large investments. Since it is the management’s role to identify, as-
sess, and manage risk, the managerial response is closely tracked and is
expected to have sound foundation, justification, rationale, and use of tools
such as scenario planning.
Research Methodology
The case methodology utilized in our paper relies on multiple sources of
evidence and aims to bring new insights. Two European multinational com-
panies were selected, since these companies are facing formidable chal-
lenges in their Indian operations and, more importantly, the data for re-
search could be collected with lesser hassles. As Yin (2008) indicates,
the access to information is a key factor in conducting case study re-
search and it is also preferred to have more than one case to back up
a research. We also attempted to find out whether there is a basis for
generalization by comparing the empirical results with the existing theories
or surveys. The primary sources enabled us to structure the case stud-
ies, examine the relation between the literature studies and manifest as
a qualitative survey. According to Jansen (2010), a qualitative survey is
the study of diversity that does not count the number of people with the
same characteristics (value of variable), but it establishes the meaning-
ful variation (relevant dimensions and values) within that population. In
this study, inspiration is sought in the methodical approach used in con-
nection with multiple case studies and it is the choice of the qualitative
interviews that opened up the possibility of gradations, regular interpreta-
tions, and specifications of important issues, regarded as a combination of
theoretical deductive and empirical inductive methods (Sjöström, Johans-
son, Asplund, and Alricsson, 2011). The data was collected by interviewing
the executives in India, as well as people at different organizational lev-
els. Additional data was provided by a private agency, apart from visits by
the post-graduate candidates to the channel partners, and other sources
such as committee reports, newspapers, and electronic sources. Since it
was possible to follow the case organizations for a limited period only, the
empiricism is based to an extent on historical data, events that occurred
before the initiation of a formal case. The two selected case companies
stand out from their peers, due to the initial jolt they experienced and the
continuing impact on the bottom-line financial results. We used multiple
informants, as well as archival data to crosscheck the pertinent informa-
tion and ensure the reliability of data obtained. Also, with the hope of en-
hancing internal validity, other factors that could serve as alternative expla-
nation for the observed patterns were recorded. A map of factual events
was created and juxtaposed with the hypothesized reasoning behind these
observations.
Volume 3, Issue 1, 2014
130 Amol Gore and Pekka Kess
Empirical Investigation and Findings
In this section, we present the two case studies developed from systematic
efforts and perseverance. The purpose here is to describe the situations
and unfold them in order to gain insights and learning.
Company A
Company A is a subsidiary of the European multinational company XYZ and
is a leading producer of athletic shoes, apparel, and accessories. Com-
pany A, a reputed brand in the sports equipment industry, was acquired by
XYZ in 2005 in order to challenge the market leader. The combination of
Company A and XYZ accelerated XYZ Group’s strategic intent in the global
athletic footwear and apparel markets and today (2012–2013 figures) the
revenue of XYZ has reached over C14 billion. As of 1 January 2012, XYZ
employed over 46,000 people and recorded a profit of over C1100 million.
XYZ operates in Europe, the Americas, and Asia, and the combined entity
of Company A and XYZ offers a complete portfolio in key sports categories.
The Indian operations of Company A and XYZ merged in 2011 and in
the meantime, Company A was already enjoying a head-start over rivals.
Company A was appreciated for its performance and even regarded as a star
performer. When Mr. P became the Managing Director of the combined entity
in India, few eyebrows were raised considering that he had the necessary
credentials and was an ‘old hand,’ having joined the company in 1995. Mr.
P initiated a rapid expansion plan of brand A (Company A) in India under
his own authority and the plan seemed to substantially enhance the brand
image. The number of stores grew from just 100 in 2003 to over 800 in
2011. As such XYZ Group was looking at India as a global manufacturing
hub since 2004, after establishing similar operations in China. The strategic
business plan of XYZ called the ‘Route 2015’ included India as one of the
key markets.
The shock came when XYZ Group announced that it had uncovered a
fraud of the magnitude of C125 million at the Indian operations of Com-
pany A. Subsequently, the Managing Director Mr. P left the company along
with more than ten other senior employees and the Chief Operating Officer.
The XYZ Group stated: ‘Mr. P has been charged for financial irregularities
and a criminal complaint has been registered for investigation by the Indian
law enforcement authorities.’ Three different agencies viz. the Income Tax
department, the Serious Fraud Investigation Office (SFIO) under the Cor-
porate Affairs Ministry of India, and the Economic Offences Wing of the
police force, recorded the findings at the Company A. The probe revealed
that the governance and operations in the company were mismanaged and
there was gross non-adherence to the guidelines of the business proce-
dures in the firm. Mr. P was accused of stealing products, setting up secret
International Journal of Management, Knowledge and Learning
Treading the Risks in International Management 131
Figure 1
Central Risk Management
System at XYZ Group
Supervisory and Executive Boards
Risk Management Policy and Methodology
Risk Owners
Monitoring & Reporting
Evaluation
Handling Identification
warehouses, fudging accounts, and engaging in fictitious sales for years.
As such, a prominent multinational like the XYZ group contemplates oper-
ational risk that includes fraud, legal risks, and failed internal processes,
and the company already had a risk management system in place; however,
Mr. P himself being a ‘risk owner’ subjugated the established system. An-
other dimension to this is that there is a deviation between the formulated
central risk policy and the risk management systems implemented in coun-
try units, which in itself can be treated as a country risk. While a fraud risk
is the chance of a perpetrator or perpetrators committing fraud, which has
an impact on the organization, the word ‘honesty’ can be interpreted differ-
ently, that is, honest behaviour to one person could be seen as dishonest
by another and unless somebody in an organization clearly sets out what is
honest or dishonest, each employee will have his/her own interpretation.
It is noteworthy that when Mr. P was projecting star performance figures
the Company A didn’t notice the treading operational risks and only when
some stakeholders demanded the payment of dues did the fraud risk is-
sue become conspicuous. Figure 1 depicts the risk management system of
the company. According to the risk and opportunity report of the company
(2010), XYZ Group defines risk as the potential financial impact caused
by the occurrence of an external or internal event or series of events that
may negatively impact the ability to achieve the business objectives. Risk
is categorized as strategic and operational, compliance-related and finan-
cial. In order to facilitate the effective risk and opportunity management,
the company has an integrated system, which focuses on the identification,
evaluation, handling, monitoring, and reporting of risks and opportunities
with the aim of adding value through a risk-aware decision-making frame-
work.
Financial accounting at Company A was conducted locally and IT sys-
tems were based on SAP AFS (SAP Apparel and Footwear Industry Solution).
Volume 3, Issue 1, 2014
132 Amol Gore and Pekka Kess
The individual financial statements were transferred into a central consoli-
dation system based on SAP SEM-BCS (Strategic Enterprise Management-
Business Consolidation Services Solution). However, the ERP system in the
Indian operations of the Company A lacked reliability, because trained and
competent people were not put on the job and several post-implementation
issues remained unresolved. One executive mentioned, ‘It was difficult for
the company to reconcile the figures and present the details for the in-
vestigating agencies. This shows that the system data leaves a lot to be
desired. The company has finally just provided a break-up of the C125 mil-
lion attributed to parallel accounting that inflated sales, goods invoiced but
not despatched, goods returned and pending inspection, secret warehouse
bills, and interest lost on franchisee referral programme.’
Following the allegations of irregularities at Company A, the parent XYZ
company headquarters announced top management change in India with
Mr. EH, a national of parent country, moving in to head the Indian opera-
tions. Mr. EH immediately declined the proposal of shutting down the op-
erations of Company A, but announced a restructuring plan supporting the
business model change. Mr. EH said, ‘We are looking at new possibilities
since FDI laws in India have changed. We are ensuring that there is going
to be an internal control mechanism across all verticals, a comprehensive
system that can be established by working with our parent company head-
quarters.’
Company A decreased the number of stores in India by two-thirds and
plans to develop a business model that caters to the emerging countries.
The company declared a voluntary retirement scheme that has been ac-
cepted by more than 30% employees. Further, the company designed a
zero tolerance policy against involvement in fraudulent practices by any of
its franchise partners and suppliers. Nonetheless, the corporate risk as-
sessment data indicates that between 2010 and 2013, the risk profile is
changing. For example, the likelihood of occurrence and potential financial
impact of legal risks was moderate in 2010, but such risks have become
likely and significant respectively as of date. Similarly, the risks related to
non-compliance have changed from unlikely in 2010 to likely. The company
restated the accounts with an overall decrease in profit by over 9 percent for
the XYZ Group. The subsidiaries are brought closer to the parent company
by refining the Group policies, particularly the risk management policy that
outlines the principles, processes, tools, risk areas, key responsibilities, re-
porting requirements, and communication timelines within the Group. As an
action plan emanating from the risk mitigation review meeting, the Company
A now requires all employees to participate in a special Code of Conduct
training. Earlier, the participation in such compliance programmes in Indian
operations was need-based and the seriousness was of a routine nature;
International Journal of Management, Knowledge and Learning
Treading the Risks in International Management 133
however, now the reports are directly evaluated by the parent company in
Europe.
Mr. EH has some specific experience in the supply chain network design
in emerging countries and hopes to utilize that experience in India as well.
The modified business model includes a portfolio of contracts to be used in
supply chains to persuade the retailers with different levels of risk aversion
to select unique contracts. Basically, this results in risk being transferred
to multiple retailers. The new management team of Company A re-examined
the network design decisions taken after the Company A and XYZ merged,
since these decisions could have an impact on the performance since they
determine the supply chain configuration. The disruption risk, procurement
risk, inventory risks, and systems risks have now been duly considered. In
conjunction with the so-called global operations team, the company is at-
tempting to transform into source facility in addition to enabling a demand-
driven supply chain that leverages the existing short lead time production
models to improve availability without excessive inventory. Company A is
building a chained network in order to implement flexibility and mitigate
the risk of demand fluctuation; however, the parent company prefers an
integrated structure and hence longer chains that have the advantage of
effectively pooling available capacity but are increasing the difficulties in co-
ordination are being established. With the guidance of the parent company
headquarters, there are also future plans of moving forward with a global
procurement solution that would effectively link the Indian operations in the
overall integrated structure.
Company B
Company B, a mobile network operator in India, is a joint venture between
the Nordic (Northern European) PQR Group and the Indian LMN Group. Com-
pany B offers mobile voice and data services based on the GSM technology
and its services are commercially available in six circles with over 30 million
customers in India. In early 2009, PQR Group decided to make investments
to the tune of over C1 billion and take majority stake (67.25 percent) in
Company B. The PQR Group was gladly given the necessary approval by the
Indian Foreign Investment Promotion Board considering that PQR is an es-
tablished provider of telecommunication services worldwide with revenues
of more than C10 billion and employing 32000 people. With a high stake
and the support of PQR Group, Company B grew rapidly through a lean op-
eration model and an effective strategy with a focus on excellence in mass
market distribution, enhanced services, and cost efficient operations.
The shock came in February 2012, when the Supreme Court of India
ordered the cancellation of all 122 unified access services issued in Jan-
uary 2008 and directed the Telecom Regulatory Authority of India (TRAI)
Volume 3, Issue 1, 2014
134 Amol Gore and Pekka Kess
to make fresh recommendations for the telecom spectrum auction route,
reasoning that the 2G licenses were allotted in an unconstitutional and ar-
bitrary manner. Reacting to this telecom scam and sudden cancellation of
all licences, PQR stated, ‘This pertains to actions that happened much be-
fore we entered India. Since we have not caused any of the faults found
by the courts, it is obvious that our investment must not be jeopardized.’
However, this was the beginning of a feud between the European PQR Group
and the Indian LMN Group over risk management and control of Company
B. The PQR Group wanted to scrap the joint venture outright, but this move
was strongly rejected by LMN; consequently, litigations and disputes fol-
lowed. The parent company headquarters decided to directly oversee the
developments in India and the CEO of PQR became the key liaison. Com-
pany B had risk management system in place, but only the highlighted risks
were reviewed in quarterly business meetings. Actually, a similar system
was followed by PQR Group as well and ad hoc risk management deci-
sions were taken or more often left to the country managers. Neverthe-
less, PQR was aware that operating across multiple markets exposed it
to a range of financial, regulatory, operational, and reputation risks and,
therefore, planned to integrate systematic risk management with Group’s
business processes. PQR certainly realized that there was a substantial
risk that Company B will not be able to continue operations in India and yet,
lured by the India phenomenon, PQR kept raising the investments. Later,
in 2012 auction, Company B actually won back the licenses and spectrum
in six circles, although it had to discontinue its operations in Kolkata and
Mumbai.
In October 2012, PQR and LMN reached an agreement to amicably settle
all disputes and the business of Company B was transferred to a new entity
controlled by the PQR Group. In a European press statement, the PQR Group
CEO said, ‘An extraordinary turnaround operation was followed and very
early on we left no doubt about our intentions to stay and secure our future
operations in India that will be one of the world’s biggest growth markets
for years to come.’
PQR decided to implement the learnings from India across eleven coun-
tries, mainly implementing the sustenance model developed by Company
B. With ‘group industrial development (GID)’ initiative, the headquarters is
setting up central teams that will travel and work with local operations in
order to push the new models, such as the tower profitability model, the
tracking system, and so on. The Chief Financial Officer of Company B, along
with fifteen other employees, has been moved into units of GID that review
sourcing, managed services, markets, and project management. As in pre-
vious years, the headquarters is working on systematically reducing the risk
in the supply chain in 2013–2014, but in a more structured manner. The lo-
International Journal of Management, Knowledge and Learning
Treading the Risks in International Management 135
cal risk managers now have to coordinate the risk management processes
and interact with the parent company in addition to evaluating the level of
integration and percolation of Group’s strategy and business plans.
Discussion and Conclusion
This section discusses the results coming from the comparative analysis
of the cases. The considerations are organized and also a framework is
generated. The cases make it apparent that when actually faced with risks
and challenges in international management, the companies do not really
follow the ideal steps and in fact, practitioners may not even follow the
risk management policies of the company in letter and spirit. Our research
shows that companies don’t tread the risks systematically and item-wise,
they tend to reduce the risks by taking drastic steps when the situation
comes to ‘crossing the bridge.’ Both companies, A and B, had a risk man-
agement system in place before the incidents actually occurred; however,
the methods of tackling the risks were quite different than expected and the
gap between the central risk policy and its implementation at the country
level became clearly visible (see Table 2). In the past five years, multina-
tionals have traced the model of networks and regarded the role of parent
company headquarters as designing process architecture instead of exert-
ing direct control. However, analysis indicates that the need for more local
commitment to transfer best practices and to promote parent company val-
ues and conduct necessitates companies to seek more control over their
foreign subsidiaries.
Furthermore, risk mitigation and practices that call for or lead to bringing
the subsidiaries closer to the parent company are the reasons for tighter
integration of subsidiaries. At best, multinationals can experiment with ‘sub-
sidiary democracy’ or selecting best operating practices initiated collectively
by their subsidiaries. PQR is already in the process of forming effective
teams that contain representatives from each subsidiary, as well as head-
quarters that deliberate on common interests. Ultimately, the dynamism of
the parent company headquarters matters (see Figure 2), though futuristic
multinationals are seen moving from ethnocentric approaches to geocentri-
cism. Subsidiaries can move to incremental upgrading, but even that de-
pends partly on having a headquarters that is willing to provide adequate
support.
In the era of agile networks, it would be surprising to record that multina-
tionals can turn back to the vertical model where knowledge flows top-down
from headquarters; however, this strategy can still prove desirable, although
the issue arises whether it is pragmatic to back-track from transnational
or global path to the traditional multinational conduit. The focus would
then again be on leveraging the strengths rooted in the parent country,
Volume 3, Issue 1, 2014
136 Amol Gore and Pekka Kess
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International Journal of Management, Knowledge and Learning
Treading the Risks in International Management 137
Supply Chain Risk Multi-domestic
Unreliable ERP
system
Polycentric
Transnational
Route
Ad Hoc Risk
Management
Parent Company
Headquarters
Operational Risks
Strategic Risks
Socio-
Cultural
Country
Risks
Ethnocentric
Traditional
Multinational
Risk Policy
Refined
Network
Reformulate
International
Strategy
Mandatory
Training
Geocentric
Subsidiary
Democracy
Risk Strategy
Implement
Global Maturity
D
es
ira
bl
es
Figure 2 Framework of Actions by the Parent Company Headquarters
centralized configurations, and practices dictated from the headquarters.
Considering that agile networks focus on loosely coupled structures and
are entities developed from interactive collaboration of a number of com-
panies shaped in a particular way to fulfil a business objective (Gore &
Panizzolo, 2012), differentiated network, such as global factory can signifi-
cantly stabilize the risks in international management. According to Buckley
(2011), the development of the global factory provided new opportunities
for new locations to enter the international business and emerging coun-
tries, such as India, are subcontracting production and service activities
from the brand-owning multinationals. At the same time, multinationals re-
tain the control, for example, at Company A the headquarters’ Operations
team is planning to assume end-to-end responsibility for the supply chain
after reviewing the local processes that can be integrated into a desired
structure. Chopra and Sodhi (2004) have already showed that by under-
standing the variety and interconnectedness of the supply chain risks, the
managers can tailor balanced, effective risk-reduction strategies. Then, the
risk management as such can be relegated to a unique platform wherein
the Chief Risk Officer (CRO) would be expected to rigorously question the
assumptions underlying the business strategy and validate the same using
benchmarking data, competitive data, and sector analysis. We suggest the
following propositions:
Volume 3, Issue 1, 2014
138 Amol Gore and Pekka Kess
P1 Multinational companies operating in emerging economies are more
likely to seek a greater control of their subsidiaries and favour tighter
integration instead of loose structures.
P2 Managerial perceptions play a critical role in determining the inter-
connectedness of the supply chain risks in emerging countries and
may therefore underpin the sustainability of operations.
P3 The risk management decisions tend to be holistic, qualitative, and
subjective rather than assessment-driven, quantitative or adherent to
predetermined criteria.
This paper indicates that the investments in India and other high-risk
emerging countries are driven by their potential for growth and subsequent
returns, rather than a judicious risk evaluation and rational criteria. For in-
stance, the threat of operational risks to organizations in India is known and
supply chains are often vulnerable (Chopra, Meindl, & Kalra, 2011; Reddy
& Raju, 2013) and still companies take only limited precautions resulting
in increased risks and even losses. A recent, comprehensive survey – India
Risk Survey 2013 – launched by the Federation of Indian Chambers of Com-
merce and Industry (FICCI & Pinkerton, 2013) aims to vindicate this risk
prevalence and attempts to recognize the risk factors faced by the public
and private companies while operating in India. The widely recognized FICCI
report 2013 regarded the operational risk as focusing on the risks arising
from people, systems, and processes through which the company operates,
and has now made an operational risk assessment in the dimensions of in-
formation and cyber security, corporate frauds, business espionage, and
intellectual property theft, or in other words, technology breakdown, com-
pliance failures, legal exposures, and process disruptions. Supply chain
fraud can cover the entire breadth and depth of an organization, affecting
activities and relationships both inside and outside the organization. Im-
plications for managers are clear in that they need training on systematic
risk assessment and reduction. Moreover, the understanding of measures
that promote awareness and help build an anti-fraud culture is imperative.
Future research that provides insights into the phenomenon, as well as and
conclusive evidence and propositions would be of interest.
Acknowledgements
We would like to thank the anonymous reviewers for their perceptive sug-
gestions. Also, we are grateful to the Institute of Management Studies and
Research, Mumbai for providing the necessary support for this work.
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Amol Gore is currently working as a Professor in Mumbai. He holds a Mas-
ter of Science in Engineering, and a Doctorate in Industrial Engineering and
Management, EU 89/48/EEC, qualifications. He received the European Com-
mission Scholarship for his Post-Doctorate in the field of management, and
his book in the area of Operations Management has been published by Cen-
gage Learning. amolgore@yahoo.com
Pekka Kess is a Professor at the University of Oulu, Finland, and has an
extensive academic and industrial background. He published over 100 sci-
entific articles and has been an invited key speaker at several conferences.
Also, he worked as a project evaluator and international project manager.
pekka.kess@oulu.fi
This paper is published under the terms of the Attribution-
NonCommercial-NoDerivatives 4.0 International (CC BY-NC-ND 4.0)
License (http://creativecommons.org/licenses/by-nc-nd/4.0/).
Volume 3, Issue 1, 2014