SVA - "De-risking" - Letting go of the tiger's tail

Multinational companies in Asia are responding to geopolitical tensions, pressure from the US, and a more uncertain and challenging policy outlook in the People’s Republic of China (“PRC”) by “de-risking” – essentially shifting activities to Southeast Asia, South Asia and other locales.

Such moves may alleviate certain threats arising from a maintaining a China-based operation, but departure still entails significant risks. Moreover, going elsewhere can expose companies to new threats in little-understood, unstable or challenging places.

Careful stewardship can mitigate against the risks, though. SVA is in a position to assist companies in safely “de-risking” and dispersing operations – and so help in “letting go of the tiger’s tail” without being bitten.

A changing landscape

Global manufacturing, hitherto focused in great part on the PRC, appears to be shifting to new locations, in response to US demands for “de-risking”, growing uncertainty in China, and concerns about supply chain security. A shift in the geography of commerce is under way.

In Southeast Asia, for instance, Vietnam has become a favoured destination, while Bangladesh and southern India offer cheap alternatives in South Asia. These countries are benefitting significantly from inward investment.

Some US manufacturers have increased production in Mexico, too, previously seen as more expensive and challenging than the PRC, but now benefitting from proximity. Eastern European states may soon offer similar options for companies within the European Union.

This shift makes sense in the context of geopolitical tensions, and in time could reshape global production lines – although the degree to which such restructuring is truly possible is not yet clear, given China’s dominance in supply chains.

The devil in the detail

Implementing such a shift may not prove straightforward, of course.

China’s great strength in recent decades has been its reliability, in terms of pricing, growth, and social stability – something hard to predict when China joined the World Trade Organisation in 2001. The outlook in the PRC may have deteriorated, but not all of the other states can boast these qualities.

Indeed, identifying which of the alternatives will prove the “best bet” is hard. India’s population is growing fast, but its bureaucracy is slow and corrupt. Bangladesh has faced political turmoil in recent years, as has Thailand – although both states have advanced their manufacturing sectors nonetheless. Indonesia has a long history of protectionism and nativism, and sometimes contradictory policymaking.

These states also vary greatly within their borders; Indian states such as Karnataka and West Bengal, and Indonesian regencies, differ markedly in their commercial policies. A “cookie cutter” approach to dealing with country risk will just not work.

Letting go of the tiger’s tail

Scaling back operations is the first challenge businesses will face.

After all, an ill-planned or precipitate departure could offend both local and higher-level officials, particularly where the firm employs substantial numbers of workers or contributes otherwise to the local economy. If irked, officials may refuse permissions to withdraw funds, or to scale back operations, and may even take action against executives.

A further threat is that scaling back may reveal unwelcome surprises, by disrupting activities hitherto unknown to the foreign investor – such as corrupt arrangements or “sweetheart” ties to local suppliers. The risk of unpleasant discoveries has grown since the pandemic, as limited travel had meant that many local operations have operated with much autonomy.

In that context, exercises and assessments ahead of exiting will be crucial in helping boards handle “de-risking” – and so in avoiding a mauling on the way out.

SVA’s experience is that such inquiries should be thorough, should range across high- and low- levels, and should cover a wide range of stakeholders, such as central government and regional officials, local suppliers, logistics partners, and unions or lobby groups. Close local partners require especially careful handling, as they have much to lose, may understand the business intimately, and often wield significant regional or sectoral sway.

Executives will also need to be mindful about publicity – whether negative, in terms of statements about the need for a departure, or positive, in terms of promising investment elsewhere. Some foreign businesses in the PRC have struggled with coordinated social media attacks, and subsequent regulatory problems, owing to clumsy comments in the local or international media.

In the event of the discovery of fraud or other financial crime, executives should carry out independent investigations aimed at identifying the scale and scope of the problem, and the parties involved. Such investigations not only help in limiting financial losses, but may also be valuable in resolving other issues, such as instances where local partners control intellectual property rights, or retain other leverage, and can hinder withdrawal. SVA have handled many such exercise on behalf of international clients.

Into the unknown

Planning is equally important in choosing where to go. Ahead of an investment, companies should carry out extensive business intelligence inquiries, geared to their interests.

Such appraisals must cover political risks, such as the governmental framework and outlook, the local attitude to foreign investment, and the predictability of policy making. These exercises should also examine the commercial and regulatory stances, and identify threats that could hobble growth. Weak infrastructure, a history of sudden tax shifts, or prohibitive labour laws are all of note in South Asia and elsewhere.

Corruption is an obvious concern, but it varies in extent and nature across the region. Graft in Bangladesh, India and Indonesia can affect licensing, taxation, and supervision and enforcement. Moreover, the faster a business may grow, the more it may be at risk; there may be an unexpected “levy on success”.

These exercises need also to consider geopolitical and regional issues – such as to what extent a conflict in the South China Sea will affect supply chains, or whether dealings with Beijing could result in sanctions on the new destination, or a third country. Previously, such issues seemed secondary at best – now, they are major concerns.

Similarly, appraisals should take into account the role of proposed counterparties or partners. Thoroughgoing investigations into individuals or companies can limit the risk of being strong-armed or defrauded by a local partner, or finding that seemingly promising links actually result in unforeseen reputational or regulatory risks.

Most importantly, such investigations cannot be mere “box-ticking” exercises done from a distance. Rather, they should dig deep, with an eye on conflicts of interests, unusual ownership structures, and other “unknown unknowns”. They should also be executed by an independent team; SVA are specialists in this area, and not be carried out by home-based officers unfamiliar with ground-level risks.


As “de-risking” moves forward, and businesses explore alternative locations, new and severe risks are emerging.

Companies operating in Asia need to be mindful of the risks of both exiting old markets and entering new ones.

Independent risk mitigation exercises are essential in both instances, and boards should consider how to use the findings to structure the shift effectively.

With 40-years of operations in Asia, SVA has considerable experience in helping clients move swiftly to seize opportunity, and in mitigating risks as they do so.


SVA is a specialist risk mitigation, corporate intelligence and risk consulting company. The firm serves financial institutions, private equity funds, corporations, high net-worth individuals and insurance companies and underwriters around the world.

SVA has three core lines of business, which are: Business Intelligence and Political Risk; Corporate Investigations; and Special Risk and Response. SVA also has a dedicated crisis management team which, for our retained clients, stands ready to assist companies during crisis situations.

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