LONDON, UK – Ukraine, roiled by conflict with neighbouring Russia, poses significant challenges for companies considering expanding their supply chains there. So does Thailand despite the years that have passed since the popular manufacturing destination’s devastating floods.
Exactly what risk do these countries present? Their vulnerabilities, as well as those of many other countries, are quantified in the definitive ranking of supply chain resilience around the world, the 2015 FM Global Resilience Index, released today.
Woes of Russia’s neighbour
Ukraine fell 31 places in this year’s FM Global Resilience Index to 107th, the biggest year-over-year fall in the rankings, owing directly to Russian military intervention there. This worsening political risk and a weakened infrastructure are the main negative factors affecting the rank of Europe’s largest country.
Thailand, one of the world’s top exporters, fell 20 places to 82nd of 130 countries and territories examined. In particular, the ranking reflects poorer perceptions of the country’s infrastructure (e.g., transport, telephony and energy) and the quality of local suppliers as well as a decline in political stability and the quality of fire risk management. These matters compound the misery of the country’s 2011 floods that wreaked an estimated US$45 billion in losses and business disruption worldwide.
There was good news, however, for Taiwan. It soared 52 places in the annual rankings to 37thoverall, a bigger rise than any other country. Its ascension is mainly due to a substantial improvement in the country’s commitment to risk management, as it relates to both natural hazard risk and fire risk.
Updated annually by commercial property insurer FM Global, the data-driven 2015 FM Global Resilience Index gauges resilience (the flipside of risk) along nine dimensions. The Index compiles vetted data from sources such as the International Monetary Fund, World Bank, World Economic Forum and FM Global’s database of more than 100,000 client locations. Countries and territories examined are ranked from most to least resilient1. Online and interactive (www.fmglobal.com/resilienceindex), the Index enables users to drill into individual resilience factors and drivers as they plan supply chain expansions, select suppliers (and backup suppliers), and evaluate existing facilities.
“Business leaders who don’t evaluate countries and supply chain resilience can suffer long-term consequences,” said Bret Ahnell, executive vice president, operations, FM Global. “If your supply chain fails, it can be difficult or impossible to get your market share, revenue and reputation back. The FM Global Resilience Index is designed to help business leaders stay in business by making informed decisions about where to place and maintain global supplier facilities.”
Leaders and laggards
Norway is ranked #1 in the Index as the country best suited for companies seeking to avoid disruptions in their global supply chain operations. Venezuela ranked last on the list of the 130 countries and territories listed.
UK & Ireland
Ireland keeps its place in the top 10, and moves up one place this year to 4th in the rankings, reflecting both its low exposure to natural hazards and the fruits of its austerity and fiscal regimes. For the third year running, the United Kingdom (UK) has held on to its rank of 20. Its ranking reflects its resistance to oil shocks as its consumption of oil relative to GDP is comparatively low. The UK scores well on other key drivers such as perceptions of its control of corruption and the quality of local suppliers, but there is scope for improvement in risk quality, particularly as it relates to fire risk management. In addition, the risk of terrorism continues to threaten supply chain security.
United States and China
The United States and China are each segmented into three separate regions because the geographic spread of these countries produces significantly disparate exposures to natural hazards. Region 3 of the U.S., which includes most of the central part of the country, ranks 10th. Region 1, encompassing much of the East Coast, ranks 16th and Region 2, primarily the West Coast, ranks 21st.
China’s three regions rank 63rd (Region 3), 64th (Region 1), and 69th (Region 2). Beyond natural disaster risk, China's other challenges range from “poor accountability and transparency, high levels of perceived corruption and growing security concerns to problems in its financial sector, especially with regard to the fragile position of its banks,” according to the Index’s 2015 Annual Report.
Romania, Guyana and Bolivia
Romania jumped 25 places due mainly to improved perceptions of infrastructure and local supplier quality.
Guyana and Bolivia both rose out of the bottom 10 this year, owing to significant improvements in commitment to natural hazard risk management in the region. Additionally, Bolivia demonstrated an improvement in the perceived quality of its overall infrastructure.
Other key findings of the Index:
Top 10 Countries – Most Resilient to Business Supply Chain Disruption
10. United States – Region 3 (Central)
Bottom 10 Countries – Least Resilient to Business Supply Chain Disruption
126. Dominican Republic
129. Kyrgyz Republic
About the FM Global Resilience Index
The Index is compiled annually for FM Global, one of the world’s largest commercial property insurers, by analytics and advisory firm Oxford Metrica. The Index is generated by combining three core factors of business resilience to supply chain disruption: economics, risk quality and qualities of the supply chain itself. The drivers of these factors include GDP per capita, political risk, vulnerability to oil shortages and price shocks, exposure to natural hazards, quality of natural hazard risk management, fire risk, control of corruption and the quality of infrastructure and local suppliers.
“As globalisation increases, business is increasingly conducted in a borderless and interconnected way,” said Dr. Deborah Pretty, principal at Oxford Metrica. “The FM Global Resilience Index provides a unique and compelling look at how 130 countries and territories stand up to supply chain disruption. CEOs, CFOs and other decision makers can now make informed investments knowing the vulnerability of these countries to supply chain disruption and their ability to recover from it.”
About FM Global
Marking 180 years in business, FM Global (www.fmglobal.co.uk) is a US$5.6 billion mutual insurance company whose capital, scientific research capability and engineering expertise are solely dedicated to property risk management and the resilience of its client-owners. FM Global works with many of the world’s largest organisations to develop cost-effective property insurance and engineering solutions to protect their business operations from fire, natural disasters and other types of property risk. In 2015, Global Finance Magazine named FM Global the ‘World’s Best Supply Chain Insurance Provider.’ In the United Kingdom, FM Global is the communicative name for FM Insurance Company Limited.
About Oxford Metrica
Oxford Metrica is an independent analytics and advisory firm that provides evidence-based research on risk and financial performance. Its work includes statistical analysis for banks and insurers, risk and performance analytics for asset managers and customised services for corporate clients.
1 FM Global defines resilience as a combination of the vulnerability of a country to supply chain disruption and the country’s ability to recover from such a disruption.