Geographic Mismatch: Coping with Dislocation in the Global EconomySep 19th, 2010 | By Scott Nadler | Category: Environmental Management, Featured Articles
Fortunately, your company has great market opportunities. Unfortunately, your opportunities are not where you have the environmental, health and safety (EHS) resources, people and knowledge. This creates a huge geographic mismatch.
You and your company have spent years (even decades) building up your EHS infrastructure to fit your historic footprint. In developed markets where you’ve operated for years, you have good people and perhaps even good “bench strength” of people coming up through the ranks. You understand local issues and regulations, and you have software that matches your operations and relevant requirements. You also have contractors upon whom you can rely for effective, efficient and compliant services for things like hazardous waste disposal and complex equipment maintenance.
The problem is that your company’s growth, investment and future are no longer focused in your traditional operating area — they are focused someplace else.
- Where do you have your EHS infrastructure? Where you are reducing operations.
- Where are you increasing activity? Where you don’t have the infrastructure.
That’s the geographic mismatch.
The Growing Mismatch
We all knew this was coming. We just thought it would take a while to get here. Changes in the global economy have accelerated and exaggerated these trends.
Emerging markets have reached the point where growth is driven by internal demand, not just export-based demand. After some recessionary setbacks, this growth is again putting pressure on commodities markets globally. This is creating major opportunities for oil and gas, mining, agribusiness, and industries that support these sectors.
Mature markets are struggling to recover and pull out of the recession. Demand is still soft, credit is still tight, consumers are not spending, and investors are not waiting. Consolidation, not expansion, still rules the day.
These trends have been out there for a decade or more, but in the past two years the recession accelerated that process by at least five to seven years. Business (and political) leaders increasingly fear that the downturn in mature markets was structural, not cyclical — that things are not coming back. When we ask companies where they see their future growth coming, they all point to emerging middle-class markets in Asia and some parts of Latin America. When we ask the same companies if they see themselves reopening facilities shut down during the worst of the recession in the United States and western Europe, the answer is overwhelmingly “no.”
Challenges for EHS in the Growing Markets
For EHS leaders, this geographic mismatch between growth and resources produces some formidable challenges. For the places where your company is growing, how do you
- Obtain market and regulatory insight?
- Deliver projects on schedule and on budget?
- Get and comply with permits?
- Recruit and keep the people you need?
- Protect the safety of your people, your processes and your contractors?
- Assure compliance with local regulations (often evolving and uncertain) and your company’s global policies?
- Manage liability “long distance” — before, during and after transactions?
- Do all this when “your people” in emerging markets may not even be your people, but suppliers or resources shared with a joint venture partner or other business allies?
These markets — where it may be most difficult to achieve your desired level of EHS performance — are the same locations where sustainability expectations for your company may be highest.
Challenges for EHS in the Slowing Markets
The slowing markets create their own set of EHS challenges. People and headcount are lost, investment is postponed or cut back, and facilities are consolidated and closed. These realities create challenges for
- Delivering process safety while staff are losing process knowledge
- Providing assurance when staff are being cut back
- Managing facility closures while regulatory and community attention are high
- Avoiding complacency from the top: “EHS is done here. Let’s shift the time and money to the growth areas.”
The answers are different for every company and every location. However, some patterns are emerging about how companies cope with these challenges:
- Leverage local knowledge and resources.
- Work collaboratively with your people in emerging markets; be open to learning from them.
- Work collaboratively with the people inside your company in other business functions who are wrestling with these same pressures, even (or especially) if they’re not the people you are used to working with.
- Make clear, smart and transparent decisions about what needs to be consistent and what needs to be variable.
- For those things that need to be consistent, put in place next-generation assurance approaches that let you know what is or isn’t working, rather than just checking the boxes or counting repeat findings. Drive performance, don’t just document failure.
- Start projects earlier — everything takes longer than everyone thinks.
- Develop clear strategies for both the growing and the slowing markets — don’t assume the same strategy works in both locations.
About the Author
Scott Nadler is a partner in the Chicago, U.S.A. office of Environmental Resources Management (ERM). He helps senior business managers identify and implement the role that environment, health, safety and sustainability should play in their businesses. Mr. Nadler speaks and writes on a number of EHS and sustainability topics. His recent presentations include “Citizenship & Sustainability as a Vital Component of the Strategic Planning Process” and “The Corporate Governance and Sustainability Landscape” for The Conference Board. Mr. Nadler’s publications include “Leading from Below,” with James Kelly, in The Wall Street Journal (March 2007); and “The Financial Climate: Survive and Thrive,” with James Clayton, in Safety and Health Practitioner (January 2010). He is a Lecturer in Social Enterprise at Northwestern University’s Kellogg School of Management, and he also teaches an undergraduate course at Northwestern.
Image: Coloured World by Ilco, Izmir, Turkey.