The Earthquake in Japan: A Firsthand Account

Kanryu Nagase

On Friday March 11, 2011, a magnitude 9.0 earthquake struck Japan; it was the largest earthquake on record. Although it was the middle of the afternoon, I happened to be home on vacation. The vibrations gradually increased during the first minute. I became panicked as the shaking lasted more than five minutes and my belongings began falling off the shelves of my home. I was afraid and wanted to flee the house with my wife, but the world was also shaking outside. The aftershocks continued after the epicenter moved south. Over the next half an hour, four more earthquakes of M7.0 or higher struck. The original earthquake struck just 350Km away from my home. This time it occurred just 80Km from my home.

After the shaking stopped, the power shut off, as did the water and the telephone service. Two of my relatives live nearby with their families. Their houses were rendered unsafe by the events and so it was deemed best for the entire family to shelter in my home. Ten
people, including me and my wife, would then live together for the foreseeable future in a house with no electricity or running water. Fortunately, we were moderately prepared. We have solar access during the daylight hours and were able to watch the events unfolding on the television.

Next, The Tsunami

The five largest earthquakes in human history have occurred in Japan, but the effects of the tsunami caused by the earthquake were unimaginable. I was overwhelmed beyond all human understanding by the power of nature. We watched as the damage caused by the double disaster was surveyed. Tears of ten years would not drown out the horror we felt as they screened images of the wreckage in the wake of the tsunami. More than 15,000 people were killed. More than 8,000 more were missing. Some 110,000 homes were destroyed. More than 70 bridges were knocked down, and the combined damage to the railway tracked spanned 26 locations. At its highest point, the tsunami was 15 to 30 meters high. The coastline in this region is like a saw tooth and the wave ran into the bay in the shape of the letter V,
reaching the height of 30 meters or more.

In the coastal area near where I live, there has been significant soil liquefaction, with the ground sinking tens of centimeters. As a result, many of homes and many roads are now partially destroyed, including nearly 2000 buildings and about 700 houses. Furthermore, fires spread for several days and caused substantial fire damage. These losses also affected the supply of gasoline, which had a major impact on logistics. The residents of Tokyo (approximately 400 km from the epicenter of M9.0) also felt the effects of the earthquake. All trains stopped due to power failures, such as transportation, causing many people to find shelter if they could or walk home even if the walk was longer than 7 or 8 hours.

Then, Nuclear Meltdown

This was the situation before word came of the nuclear reactor meltdown at a nuclear power facility in Fukushima. Immediately following a hydrogen explosion at the plant, the Japanese people were told by the government that conditions were safe. The facility was prepared to automatically stop the fission process during a large earthquake, with backup generators kicking in to provide power to the cooling system to keep the core reactor (ECCS) cool. The tsunami, however, wiped out these generators and the disaster continued. Atmospheric radioactive material spread to the sea and air, with the total impact still largely unknown. Even months later, the 80,000 people who lived in the surrounding area have been forced to remain in shelters. The effects of human exposure, disruption of the food supply chain and rumors of even greater damage have had a severe impact on the economy. Added to demands for power rationing through the summer and the possibility of mandated rolling blackouts, the potential repercussions are immeasurable. Aftershocks still occur every few days, even months later.

Personal to Professional

So far, I have discussed the events of the earthquake from my perspective. I would now like to offer a review of the resounding business impact to both industry in Japan and across the globe. There are an extensive number of SMEs and other manufacturing companies in the Sendau region that support Tokyo. Additionally, the region was a thriving tourist hub and was home to a large fishery. The impacts were extensive and touched many sectors.

The manufacture of electronics components and semiconductors, automobile assembly and related parts, and LCD screens were particularly hard hit. Because of just-in-time supply chains and lean manufacturing models, many companies stocked insufficient inventory, which impacted both foreign and domestic companies. One reason for this is the popularity of broad complex supply chain models (SCM) that are multi-layered and vulnerable to catastrophes. Most large companies have competitive SCM strategies, but can only build strong relationships with perhaps the second and third layers. Once there are five or six layers, it is difficult to understand the SCM in any depth, even though those smaller suppliers may be essential to the differentiation of the product. They can build custom-made parts that have become the source of suppliers for the company. In some cases, these five or six suppliers were all impacted by the earthquake, which caused shortages and disruptions in production.

This is not the first time that automotive SCM was severely disrupted by natural disasters. In recent memory, there was the Hanshin Awaji earthquake in January 1995 and the Niigata earthquake in 2007, which delayed supply parts to nearly twenty companies. The companies took several months to recover from the disruption. According to IDSR, the global disasters that occurred in 2007 are considered to have been a significant contributor to the ensuing economic harm.

Crisis Management

In this section, I will consider the topic of crisis management in Japan. I want to say that assumptions were made about the disaster prevention phase of the threat, namely how to prepare for an earthquake, flood, fire, etc. The trend in crisis management in Japan is to focus on disaster prevention as a component of BCP, which has been researched and executed in many organizations. When this name and people said that it was completely unexpected and beyond preparation, it became an event beyond the scope of BCP. Based on the prior experience following the Hanshin Awaji earthquake, 72 percent of enterprises had not returned to the income level prior to the quake, even ten years later.

However, it is definitely outside of the scope of normal BCP for both small- and medium-sized enterprises and even big enterprises with sophisticated technology when they are hit with a triple disaster (earthquake plus tsunami plus nuclear meltdown) that resulted in power failures, roads cut in half, and railway disruptions that occurred in a 500km area. Perhaps the restoration process will present a useful opportunity to consider decentralizing operations and present an opportunity to rethink BCP’s place in a country like Japan, where the number of disasters far exceed the average. It was thought sufficient to separate operations by a distance of 40 to 50km in general, but we have learned this may not be sufficient.

It is also important to consider the role of emergency response as a disaster is occurring. Some companies were prepared and were able to respond calmly, but many companies were unprepared even if they had a written plan. Many of these had never performed a drill or training session for their employees. With outdated BCP and emergency response manuals, the personnel reporting method and the point of contact are notalways clear, especially if the lines of communication are down. Judging by the Hanshin Awaji earthquake, prompt initial response is essential and will impact how fast information can be received to start subsequent recovery activities. Especially if the catastrophe had a wide impact on a whole region, information from the site may be hard to come by.

BCP teams have to make rapid-fire decisions based on this information. Prior experience through training and exercises and a strong connection with human resources are important and should be reviewed on a daily basis. It is critical key to have the consent of top management to foster a sense of urgency to employees. Secondly, it is important for the disaster site management team to be able to delegate tasks with authority and have the support necessary to have the offsite up and running as soon as possible. All departments are key to this process and mutual trust of the management team is necessary in order to gain that support.

Supply Chain Models (SCM)

Next, I will review SCM. In response to this earthquake, even the largest companies have stated the need for a review of SCM, which can be time-consuming, but would ultimately move the industries toward eliminating regional dependency. In-house or overseas relocation strategies with multiple vendors and suppliers are two strategies under consideration for ensuring the continuity of the specialized manufacture of competitive parts and the assembly of these specialized parts that are common in this region. As to the direction of crisis management in the future, it seems that more thorough disaster prevention strategies are needed as well as continuing to build a BCP plan based on the original BIA for more day-today needs. On the other hand, a redesign of the big enterprise to reduce dependency on any one location will simultaneously create a resilient enterprise in the face of disaster and add competitive advantage.

If we build BCP into part of the regional SCM strategy, we can foster awareness of the crisis for the local SMEs that have scarce fiscal resources and talent, urging them to build a network of inter-regional cooperation and inter-enterprise support. Focusing on BCP as a practical rather than a theoretical exercise is expected to become an urgent issue in Japanese business and will help companies, especially the networks of small enterprises that need to, prepare. The wake of the earthquake is expected to significantly change the business environment and to highlight the importance of BCP.

Beyond natural disaster, greater BCP will also help companies prepare for other changes in the business environment, such as technology obsolescence and the emergence of new competitors and technology. Additionally, BCP can help with the survival of a company through innovation and change, both of which will be required to rebuild. BCP is business continuance and the business exists only because there is a customer. Maintaining the capacity to continuously offer products with superior service, high quality and a competitive edge—no matter what occurs—is a business continuity plan. Having a plan lets your customers know that you understand their perspective and their needs.

In Conclusion

In Japan, we have a history of coming together to help ourselves out of disaster. I defend myself. My family defends me. My company defends me. We defend our country. The eternal problem is, then, how to continue fostering this awareness of crisis after everyone has moved on.

Kanryu Nagase’s experience with business continuity began as IBM started increasing their mainframe shipments to the Asia Pacific region in 1965. From that time on, Mr. Nagase has supported disaster recovery and emergency management of natural disasters for core business in many industries during his 35 year career with IBM Japan. In addition to his many years with IBM in Tokyo, Mr. Nagase was also assigned to IBM Poughkeepsie, New York, IBM Raleigh, North Carolina, IBM Jakarta, Indonesia, and eventually headed the service organization for the Asia Pacific region. After retiring from IBM, Mr. Nagase’s experience with business continuity deepened when he became a director of the Crisis Management & Preparedness Organization (CMPO), which was the first NPO for crisis management established in Japan in 1999. Since then, Mr. Nagase has established and represents the Japan Service Value Association (JSVP) that organizes IT service corporations and promotes efficiency among mutually compatible concerns including business continuity planning and consulting. In 2010, Mr. Nagase was elected chairman of the board for DRI Japan.

 

 

The Outage and The Impact

Despite the extensive efforts that the Egyptian government made in the past years to develop and promote the adoption of technologies, the shutdown of communications services for a full day and the Internet for the first five days during the Egyptian revolution had a great economic impact on most services nationwide. The Organization for Economic Co-operation and Development (OECD) estimated at least $90 million USD in losses in the telecommunication sector alone during the five days of the internet shutdown. This amount refers to lost revenues due to blocked telecommunications and Internet services; averaging $18 million USD per day.

Egypt has other sectors that depend on Internet and communications, including tourism and banking. Although it is difficult to conclusively determine the losses in the tourism sector, the banking sector suffered huge losses. All online banking and e-commerce services went down, ATM machines were almost non-functioning, and credit card payment facilities at local stores and
markets were totally suspended.

The IT outsourcing firms in Egypt are a good litmus test of the state of business continuity management in the region. The IT outsourcing business line grossed $1 billion USD in revenues in 2010 (or around $3 million USD per working day). Most IT outsourcing companies were affected in two different ways: medium-sized call centers, mainly representing non-governmental and/or non-critical domestic services, went totally offline. Other critical operation call centers were fully operational, such as ambulance and fire service and
military services. What follows is a comparison between two different crisis response approaches of two big names in the IT outsourcing field, each with two different geographical locations.

Serving national vital operations, Company A decided to continue operating from its headquarters and main branch by keeping employees literally living onsite, with food and sleeping
facilities in place. As the company is located at Egypt’s prime Communication and Information Technology Cluster and Business Park, the area was totally secured and governed by the military forces during the days of the revolution.

As for Company B, a giant international company, the company headquarters was equipped with a backup satellite Internet connection to serve its international overseas customers during crisis. However, the company decided to shift its main operations to other branches in different countries. The business continuity plan stated that key employees should be ready to travel to other countries should the headquarters becomes inaccessible. The plan was updated to include the addition that key employees should be ready to travel to other countries at any moment if communication went down for a certain period of time.

In brief, the long-term impact of the Internet and communications shutdown on Egypt’s economy is hard to assess. However, this incident reminded business owners why proper business continuity
management is a crucial driver in this region for both international and local business entities. Additionally, it urged the Egyptian government to form a committee to prepare an Egyptian business continuity standard, which is considered to be a step forward in increasing the BCM awareness in Egypt and within the region.

 

References:
Egyptian Cabinet- Information and Decision Support Centre
OECD—Organization for Economic Co-operation and Development

 

Waleed Hammad is the President of DRI MENA, he is also the Co-founder & Managing Director of PROXC Consulting (a leading business continuity management company in the Middle East). He has more than 12 years experience, delivering consultancy
and training to professionals in the Middle East in the areas of business continuity management, risk management, and project
management. He also is a member of the committee responsible of preparing the Egyptian BCM Standard.

The Cloud: from my Perspective

Manuel Violante

In my activity as a certified consultant for business continuity administration, I am frequently asked my opinion about the cloud, specifically:
• If it is reliable
• If I recommend it as a valid option for disaster recovery purposes

Before giving my opinion, I would like to
clearly establish what the cloud is:
• It is NOT a physical destination, nor is it necessarily outsourcing
• In reality it is a new focus of IT and a new model of how IT services are designed, delivered, and managed
• The definition of Cloud Computing published in September 2 011 by the National Institute of Standards and Technology (NIST) is the following: “Model that permits convenient on-demand access
via the internet to a shared collection of computer resources (for example, networks, servers, storage, applications, and services) that can be supplied and opened rapidly with minimum effort of administration or interaction with the service provider.”

We should accept that the cloud is here to stay and should not be treated as a passing fad. The quantity of services we receive daily via the cloud is impressive. Like everything related to technology, we should utilize available resources in accordance with our own specific needs, whether on a personal or business level.

Before deciding to make use of the cloud because it is a fashionable technology, I recommend that you first clearly establish your need and available budget. In order to better evaluate the available options in the market and to determine which one will best meet your needs, it is helpful to complete a cost analysis up front.

Adoption in Latin America
Unfortunately, statistics and market studies (benchmarking) do not yet exist in the Latin American market that permit me to establish objectively the popularity that the Cloud has in our different countries. However, it is my impression that big businesses still view the use of the cloud with a certain suspicion, primarily out of concern for information security. Smaller businesses demonstrate a growing interest in the use of the cloud because it represents a cost savings for them in terms of equipment and software acquisition.

Two very important criteria that we should take into account when making a decision are the reliability and availability of the solution that we want to access through the cloud.

Reliability
I would like to clarify that personally, I am not a fan of social networking or of any solution that is based on the cloud, because I give great importance to the concept of privacy, both on a personal and business level.

Availability
If your services depend greatly on the availability of IT resources, you should consider whether it is always better to be the owner of your own destiny of if it can be left in the hands of a third party. This is often the case with the cloud, which often does not even have a face. Technology does not pledge its word of honor. It will fail at the least
opportune moment.

The Cloud as a Recovery Strategy Option
Finally, I will come to my opinion as to whether or not I recommend the cloud as a recovery strategy option for contingencies. When reviewing it as an option, it is important to properly evaluate the pros and cons of adoption. Consider the following:
• Your cloud will be utilizing resources that other users will also be using, so it will be competing for the use of resources.
• As the demand for those resources increases, there will be delays in response time and eventually the possibility will increase that some resources may be saturated and brought to a standstill.
• In order to obtain the benefits that the cloud offers, it is extremely important to establish constant, reliable, and rapid connections.
• When evaluating cloud providers, be sure to revise security and data protection (back up, recovery, and associated services) and maintain hard copies at all times.
• Be sure that all the businesses that you interact with in the cloud protect their—and your—resources.

• Failures are part of life, so do not be overly confident. Resources in the cloud are also vulnerable.
• If your DRP is considering cloud connection as a strategy in case your primary connection fails, be sure to constantly test this option.
• Evaluate your own virtual actions in a contingency scenario including: crisis management committee meetings, crisis communications, and resumption of critical functions.
• If the regulations of your industry are very strict in terms of privacy of information, data storage in the cloud is not an option.
• Do not put sensitive information about your customers in the cloud or any other information that would provide someone else with a competitive advantage if accessed.
• If your business is in the cloud, so are the hackers and data thieves.
• Single point of failure also applies to the cloud. Do a detailed analysis.
• Take into account that there is little or no legislation regarding cloud use and responsibility. If something fails, it will not be easy to take action against the responsible party.

And lastly, remember to always have a plan B ready in case of the failure of Plan A.

Bio: Manuel’s areas of expertise include Business Continuity Management, Crisis Management, Emergency Response and Crisis Communications. He has a BS in Business Administration from the Universidad Nacional Autonoma de Mexico. He is a Certified Business Continuity Professional (CBCP) and a DRI Certified International Instructor. He has been invited as a key note speaker at several international conferences and seminars and has helped Latin American companies in many different industries, including financial, manufacturing, and insurance. He is a member of the Board of Directors of ALCONT (Latin American Association of Continuity), founded in September 2010, and of the Editorial Advisory Council of the DRJ magazine in Spanish (Disaster Recovery Journal), which began operations in November 2011.

 

The Xceed Experience: Implementing The Plan

Khaled Embaby, Mahmoud Marzouk, Waleed Yasser, and Mohamed Al Awwa

The role of the business continuity management team at Xceed is to identify potential external and internal risks to the organization and set prevention and recovery plans. This role is not exclusive to planning, but rather it extends to include the management of staff and other resources with the objective of helping the organization to stay in business in the event of a disaster.

In light of the concerns of multiple political forces in Egypt about the possibility of the former president’s son coming to power, Xceed’s BCM Team considered the political unrest in Egypt as a potential risk, so they activated their plan. One precautionary measure was to follow opposition forces through various news sources and social platforms on the Internet.

There was increased social media activity as a result of the extreme dissatisfaction with the outcome of the parliamentary elections. Rumors began to spread that there would be widespread demonstrations.

Events at Xceed proceeded as follows:

January 24: The BCM team took control from the emergency operations center (EOC) at Xceed’s two sites in Egypt, Smart Village and Maadi Call Center Park, to monitor all activities that might affect the normal business flow.

January 25: The Egyptian Youth Coalition announced protests across Egypt. Xceed’s BCM action plans were immediately put in place with special consideration given to the possibility of an imposed countrywide curfew. Such a curfew would pose a major threat to the company’s ability to operate.

January 27: The Egyptian government cut off the Internet throughout the entire country including the corporate links. The resulting impairment to business function caused a dramatic impact on 30 percent of our business.

January 28: Demonstrators declared January 28 as Anger Day in reaction to the violent action taken by police forces to control the persistent and widening demonstrations. It was no misnomer. Egypt witnessed severe and violent confrontations between police forces and protestors. Around 5:00 p.m. the president announced that the Egyptian army would take over the security management of the country. As anticipated, a curfew was imposed from 6:00 p.m. until 8:00 a.m. daily.

The challenge at Xceed began. At the time the curfew was imposed, 880 employees were present at the Smart Village and Maadi Call Center Park sites. It was impossible to send them home because security conditions on the roads were alarming. It was considered much safer to stay at the office. We took immediate action to accommodate those 880 employees by serving hot meals and creating sleeping areas for them. At the same time, we let all the employees call their families to inform them that they were in a safe place and would spend the night on company premises. Additionally, we decided to let employees with small children choose whether or not to come in, as we expected to face the curfew situation during
the Anger Day. Fortunately, all the employees with small children decided not to come in on this day. Accordingly with the work force management team in cooperation with the operations team scheduled only those with no small children for work.

January 29: Egypt reached the red level of security. Police forces withdrew from their positions, prisoners escaped from prisons, looters were on the streets and chaos was everywhere. Xceed’s BCM team made the decision to work with the minimum number of employees required to run operations for our critical business service, which is the Ambulance 123 Hotline. Running only the one service meant accommodating 100 employees for a potentially infinite number of days.

Relying on the previously implemented plans with new daily inputs, and with the support of members of different teams—such as administration, facility management, physical security, and IT support—continuous action was in place to keep the business running and our employees safe. For the following six days, 100 employees were accommodated at Xceed around the clock. For the next three days, 250 employees were accommodated and then over a period of twelve days, we gradually increased the number of employees present until we successfully returned to normal operations.

The BCM team managed to recover business operations successfully in the face of political unrest and despite unforeseen challenges as a result of our precautionary plans. The timing and the size of the political unrest was unexpected as the anticipated political unrest was expected to take place later in the year and at a much smaller magnitude. The chaos that resulted from the reported escape of prisoners and the widespread looting were expected and caused a major physical security threat to employees and the community. Finally, the scheduled internet outage was unexpected, but Xceed’s BCM Team managed to counteract this challenge with only a 30 percent impact on business operations.

 

Xceed is a global provider of quality, multi-lingual Business Process Outsourcing (BPO) services. Xceed has two sites within Egypt, with its headquarters located in Cairo’s technology park, The Smart Village. Xceed has an additional contact center, geographically
and culturally proximate to Europe, at Morocco’s technology park, CasaNearshore Park.

Goodyear’s Global and Latin American Business Continuity Partnership

Michael W. Janko y
Eduardo F. Arguelles

This article is provided by Michael W. Janko MBCP, ARM, CBCLA (Manager Global Business Continuity) and Eduardo Arguelles (Latin America Region Business Continuity Leader), as an overview of business continuity and its role in their partnership with Goodyear’s Latin American region.

Goodyear’s business continuity policy and organizational charter follow the DRI International 10 Professional Practices and NFPA 1600, the leading global business continuity standard:

Goodyear’s Latin American region is a long-time key partner in the business continuity process. It has successfully managed many incidents, including earthquakes, pandemics, flooding, power outages, political issues, fires and material supply challenges.

Goodyear’s Global Business Continuity team works with all regions and the regional teams work with their facilities to:
• identify risks,
• respond to incidents,
• develop plans and processes,
• to be prepared in an “all hazards” approach, and
• respond to any possible incident that could affect the business.

Below are a few concepts that provide an explanation of the partnership between the Global team and the Latin America Business Continuity region.

The terms “incidents and risks” include earthquake, pandemic, hurricanes, power outages, and all other human, natural, and technological incidents, which can occur anywhere Goodyear has operations. The Latin America region philosophy is to be proactive in its preparedness efforts, focusing on people, facilities, supply chain and continuity of operations.

Fast response and recovery activities are done according to existing plans. We incorporate an all-hazards approach and use similar strategies for all incidents. After recovery, we gather lessons learned by surveying all participants, and structure action lists as a follow-up. This is consistently followed as a form of our continuous improvement process. Lessons learned are shared globally, since the incidents we face may occur in other regions – for example, hurricanes.

Messages regarding incidents and potential issues are provided to associates via different communication channels like email, intranet websites, communication board messages, and telephone calls. Associates also receive recommendations regarding travel according to the analysis made by the Business Continuity and Security departments during issues like: the Icelandic volcano eruption, political risks, the effects of earthquakes, etc.

Based on our experience, lessons learned, and process improvement goals, we proactively prepare checklists for any possible incidents such as the following examples:
• Natural Incidents
• Fire Incidents25 | Thrive!
• Earthquake Incidents
• Power and Utility Interruption
• Nuclear/Radiological Planning Action List
• Pandemic Action List

Global and Latin America’s Business Continuity teams work very closely with each other to ensure the global business continuity process cascades throughout the region. We benchmark ourselves using the “Business Continuity Excellence” process. We utilize a scorecard where each major location benchmarks themselves for compliance with each of the DRI International 10 Professional Practices. Annual goals and targets are set for improvement and the process is closely tracked. The Latin America Region has achieved its
targets since the scorecards were implemented.

The global and regional Business Continuity teams, working in concert with the region leadership teams, periodically review the following aspects:
• Results of our annual BIA/Risk Assessment
• Business Continuity Excellence results and future targets
• Actual incidents the region has managed through, including results and future action plans

The region’s proactiveness and pre-planning efforts had a major impact on speeding up response and recovery, minimizing negative impact to our associates and business operations during the following incidents:
• 2009 Chile Earthquake
• 2009 H1N1 Pandemic Potential
• 2007 Jamaica Facility Fire
• Numerous Hurricanes
• Multiple Power Outages

Goodyear’s business continuity process also encourages all associates to prepare for possible incidents at home and while traveling. A common way to look at business continuity from a whole-of-business approach is to emphasize the value of having processes to rapidly and correctly manage unexpected headwinds. These unexpected events could have negative effects on the  region’s annual operating plan. It is also known as our “overall strategy for operating under adverse conditions” and has been recognized as a best practice both internally and externally on numerous occasions.

BIO:

Michael W. Janko MBCP, ARM, CBCLA
Manager, Global Business Continuity
The Goodyear Tire & Rubber Company

Mike Janko is responsible for strategic and tactical Business Continuity related activities for Goodyear’s global operations, which include 54 plants in 22 countries with apx. 73,000 associates and annual sales of apx. $19 billion. Mr. Janko has over 25 years of experience in all aspects of Business Continuity planning including Incident (Emergency and Crisis) Management, Crisis Communications, Business Impact Analysis, Disaster Recovery and Risk Management. He is a Master Business Continuity Professional (MBCP), Associate in Risk Management (ARM), Certified Business Continuity Lead Auditor (CBCLA) and Certified Engineering Operations Executive (CEOE), with a Bachelor’s Degree in Mechanical Engineering.

Goodyear’s global business continuity process has been recognized both internally and externally as “a real competitive advantage”. Global teams have effectively responded to and recovered from over 500 human, natural or technologically based incidents since the team’s inception. Numerous articles on their team’s success with incident planning have been published in the local news media, including being featured as a “Best Practice” in the private sector on the State of Ohio’s website.

Eduardo F. Arguelles
Senior Manager Business Continuity
Goodyear Latin America

Eduardo Arguelles has built and successfully led the Goodyear Latin American region’s Business Continuity team through a pro-active and strategic sense of urgency. The Latin American Business Continuity team consists of members in each of the production and/or sales facilities in Argentina, Brazil, Central America, Colombia, Chile, the Caribbean, Mexico, Peru, Venezuela, and Uruguay

 

 

BCM Implications of the New US Free Trade Agreements with Colombia and Panama

Chloe Demrovsky

Free trade is a cornerstone of the neoliberal worldview and the pursuit of trade expansion is a pillar of United States foreign policy. According to the Office of the United States Trade Representative (USTR): “trade is critical to America’s prosperity – fueling economic growth, supporting good jobs at home, raising living standards and helping Americans provide for their families with affordable goods and services” . The USTR cites that the United States is the largest trading nation with exports amounting to roughly 1,474,000,000,000 USD [1.474(1012)] and a Gross Domestic
Product (GDP) of 14.582(1012) USD . The continuance of this trade is essential to keeping the businesses of the United States competitive in an era of globalization. On October 21, 2011, United States President Barack Obama signed into law three bilateral free trade agreements (FTAs) with Colombia, Panama and South Korea . Lauded by the business community, these agreements are expected to boost economic activity to help the United States economy out of a lingering slump following the recession that began in December 2007. How will the FTAs increase economic activity and benefit the business community? What are the implications for the management of your BCP program?

Colombia is the third largest economy in Latin America and the twenty-eighth largest market for American exports with a GDP of 288.189(109) USD . Colombia has been steadily liberalizing its economy. The nation already has free trade agreements in place with Mercosur (Brazil, Argentina, Paraguay, and Uruguay) and Canada, and it is currently negotiating agreements with Japan, South Korea and the European Union, but the United States is its leading trade partner . It was essential for the United States to reach an accord in order to maintain competitiveness as an exporter to this growing economy. The International Trade Commission expects the tariff reductions alone to boost the American economy by increasing GDP by an estimated 2.5(109) USD and expanding exports by 1.1(109) USD. Colombian imports to the United States are expected to increase by 487(106) USD . Prior to the passage of the FTA, there was significant tariff asymmetry, with American exports to Colombia facing average tariffs of 7.4% on autos to 14.6% on consumer goods, while Colombian exports to the United States were subject to little or no tariffs. Immediately upon implementation, United States exports to Colombia of agricultural products will be 77% duty free and industrial and textile products will be 76% duty free, with many other tariff lines being phased out over the next five to ten years. Colombian exports to the United States will be 89% duty free for agricultural products and 99% duty free for industrial and textile tariff lines . The reduction in tariffs will lead to lower prices on American products that will boost demand in Colombia and therefore generate growth for American industry.

A key component of the agreement deals with the agricultural sector, which is expected to be one of the biggest beneficiaries. Commodities including wheat and barley, soybeans, cotton, and corn contributed to 832(106) USD in exports to Colombia in 2010 . Once the tariffs are removed, this market share is expected to grow due to the reduction in price. Manufacturers are also expected to benefit, considering that technology and advanced machinery are one of the largest export markets to Colombia. The textile market is one in which there will be mutually beneficial results, because Colombian companies manufacture apparel using American textiles, which are then sold back in the United States as finished products. The FTA will provide American businesses with expanded access to service markets, with enhanced protection for intellectual property rights, fair government procurement, and greater protection against discrimination and during investment disputes.

The business community has eagerly expressed its support. A variety of industry leaders including IBM, GE, Cisco, Whirlpool, and Caterpillar submitted statements of support in a coordinated release on April 6, 2011. In all, forty-three unique statements representing a variety of sectors were published on the USTR site in support of the agreement. The letters feature endorsements from Chief Officers and information about how the agreement would benefit their sector and individual company.

The FTA with Panama has many similarities to the Colombian agreement. It will strengthen the United States’ relationship with one of the fastest growing economies in Latin America, which expanded 6.2% in 2010 and has a GDP of 26.777(109) USD . Industrial goods currently face an average tariff of 7% in Panama, up to 81%. Agricultural goods face an average tariff of 15%, up to 260%. Upon the signing of the FTA, over 87% of exports of industrial and consumer products and 56% of agricultural goods to Panama will become duty-free. The FTA opens up Panama’s 20.6(109) USD services market, including financial, telecommunications, computer distribution, and professional services. Panama’s strategic location as a major shipping route is a key factor in the importance of the FTA. Growth here may represent a threat to west coast ports, which is further aggravated by Panama’s plans to widen and deepen the canal to enable larger modern ships to travel through from Asia to the eastern seaboard. However, roughly two-thirds of all annual transits through the Panama Canal are bound to or from ports in the United States .

What does the passage of these new FTAs mean for BCP practitioners? Mostly, the impact will be positive. Legal barriers to trade will be dismantled, which will mean fewer compliance issues. It will be important to review the new rules and regulations to ensure compliance with any changes to existing relationships. There are also a few risk to increased trade, which are important to keep in mind. A closer trade relationship will necessitate a greater understanding of social, political, and environmental differences.  Management will need to understand and serve the needs of their diverse customers and employees in far- flung locations. Free trade increase both competition and communications between people with different  expertise and backgrounds, thereby motivating technological innovation. In the reality of a market economy, innovations and advances in technology and information will What does the passage of these new FTAs mean for BCP practitioners? Mostly, the impact will be positive. Legal barriers to trade will be dismantled, which will mean fewer compliance issues. It will be important to review the new rules and regulations to ensure compliance with any changes to existing relationships. compel companies to make adjustments that may include relocation to nations in which their production cost is lower. There will be a greater variety of governmental risks that may impact financial markets, sometimes only in one market or the other. In any case, strategies will need to be amended to ensure that they do not focus solely on local threats and opportunities.

Supporters confirm that FTAs will help the United States to pull out of the lingering slump following the recent recession, to increase its competitiveness in the growth market represented by Latin America, and to benefit from increased sector specialization. Colombia, Panama, and the United States are home to many complementary industries that will grow from increased exposure. Although the long delay caused lost revenues, the timing may be fortunate since it will t ties with a growing Latin American market at a time when the United States needs to distance itself from the troubled European market. The new FTAs will bring these neighboring economies into closer collaboration, presenting an opportunity for businesses in Latin America and the United States alike.

Bio: Chloe Demrovsky, ABCP, is the Director of Global Operations at DRI International. She is responsible for overseeing DRI International’s Global Network that conducts courses in over 50 countries on 6 continents. She is responsible for DRI International’s global education growth, which in 2009 resulted in DRI teaching more people outside the US than inside, and certification, which in 2011 increased by 72% outside the US. She created an international version of DRI’s audit course that encompasses both US and and International standards. As part of her role at DRI, she has presented at international BCM conferences on four continents. She is a summa cum laude graduate of Bard College at Simon’s Rock and a 2012 Master’s Candidates in International Business and Development at New York University where she serves as the External Relations Co-Chair for the Society of International Business and Development.

Bibliography
Cardenas, Jose R. “How Obama is Losing Colombia”.
Foreign Policy, April 25, 2011. http://shadow.foreignpolicy.
com/posts/2011/04/25/how_obama_is_losing_colombia

Colombia Trade Promotion Agreement. Final Text, October 21, 2011. http://ww.ustr.gov/trade-agreements/free-trade agreements/colombia-fta/final-text

The Economist. (2009) http://www.economist.com/
node/15014282

International Trade Commission (ITC). “U.S.-Colombia
Trade Promotion Agreement:

Potential Economy-wide and Selected Sectoral Effects”.
Investigation No. TA-2104-023. Publication 3826. December 2006.

Office of the US Trade Representative (USTR). “US-Colombia
Trade Agreement: Increasing American Competitiveness”. http://www.ustr.gov/uscolombiatpa

Runningen, Robert. “Obama Signs Trade Deals With South
Korea, Panama, Colombia Bloomberg, October 21, 2011.

Statistical Annex: Preliminary Outlook. OECD Economic Outlook,Volume 2011/12.

United States-Colombia Trade Promotion Agreement (CTPA):
Implementing Legislation and Supporting Documentation. http://www.ustr.gov/webfm_send/3077

USDA.gov. “Statement from Agriculture Secretary Tom Vilsack on Signing into Law of Korea, Colombia and Panama Trade Agreements and Trade Adjustment Assistance”. Release No. 0453.11. October 21, 2011.

Villarreal, Angeles M. “U.S.-Colombia Trade Promotion  Agreement”. CRS Report for Congress, September 21, 2006.

WTO Trade Profiles 2011. Published by the WTO Secretariat – 8228.08. World Trade Organization 2011. http://www.wto.
org/english/thewto_e/countries_e/colombia_e.htm; http://
stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?La
nguage=E&Country=PA; http://stat.wto.org/CountryProfile/
WSDBCountryPFView.aspx?Language=E&Country=US

 

Development of a BCM Culture in Latin America

Jorge Escalera

In 2011, catastrophes, both natural and manmade, caused an estimated $108.000 million in insured losses. This figure is twice that of 2010 and represents the second largest year in history for the amount of insured losses. It is only slightly lower than the figure for 2005 when the insured losses were $123.000 million, which were primarily the result of three hurricanes: Rita, Katrina, and Wilma.

2011 was a difficult year with a record number of disasters, widespread social unrest, and a volatile global economy. The interconnectedness of risks and internal challenges in the management of uncertainty was made evident. For example, the double earthquake and tsunami that struck Japan on March 11, 2011 caused serious disruptions in the supply chain of companies around the world. It caused a disruption of operations for the automotive industry, which was vulnerable because of its just-in-time inventory strategy.

These events, as well as the increasing threat of global warming, have raised awareness among individuals and businesses alike of the need for better and more adequate disaster preparedness and enterprise risk management with a comprehensive, holistic vision. Today, several professional associations have organized to support businesses to prepare for disasters, both as individual companies and collectively. One example is the Caribbean Business Coordination Council in Mexico, which, along with the InterAmerican Development Bank and the World Bank, has developed different support mechanisms for its members in case of disaster.

Whether through the creation of legal obligations or in reaction to a specific disaster, the governments of many Latin American countries have supported the creation of governmental institutions at the national, regional, or local level, allowing them to react effectively and efficiently to safeguard the health and lives of the people, to continue government operations and to reduce the potential for economic losses. Government are increasingly aware that corporations are profit- oriented enterprises, but that they also have a socials responsibility to provided financial support and employment. If a company fails in a crisis, its impact is not only economic but also social. It is an important reason for governmental interest in helping organizations to develop resiliency during disasters.

This is certainly the case in Mexico, which is a country affected by hurricanes, storms and flooding on both coasts: Atlantic and Pacific. Through the years, the army has developed excellent emergency response plans for disasters, such as the “Plan DN3” of the Ministry of National Defense and the “Plan Marina” of the Navy’s Ministry, enabling them to assist the people and respond to different types of disasters. These plans are continuously improved through testing and they could serve as a benchmark for other nations, as to how to create effective and efficient governmental plans to protect the people in case of disasters.

Continuity of operations (COOP) is another area of development. There are government initiatives to establish regulations and COOP standards of best practice in BCM. The goal is to establish a standard for both public and private organizations to improve preparedness in the event of an incident. DRI Mexico/Risk Mexico is participating in these initiatives by providing technical expertise and best practices in the field.

Authorities of the General Coordination of Civil Protection in Mexico have been working on initiatives to establish best practices for prevention, preparedness, response, reconstruction and recovery operations with a global approach. In 2012, the National Civil Protection System will seek to anticipate and prevent risks, disasters, and inherent crises, through a holistic approach that contributes to sustainable human development:

• Ensuring protection of physical integrity and property
of people at disasters risks.
• Mitigating its vulnerability toward them.
• Undertaking environmental protection.
• Promoting equality.
• Promoting a social policy that shields the poor from
the risk of being poorer because of disasters, and
• Ascending the policies of an integral risk management
to a constitutional level.

Despite the numerous efforts for preparedness in Latin American countries, the region is limited in its capacity since it is comprised of developing nations. Universities and other national institutions have limited budgets to promote the development of knowledge and research in the related fields of Business Continuity and Risk Management. There are still several highly-specialized fields that are in early stages of development, including Business Continuity Management (BCM) and Enterprise Risk Management (ERM). To help address this lack of capacity, DRI Mexico has a clear mission to promote a common knowledge base for the industry of business continuity and disaster recovery through solid education, a mission that is shared by DRI International and other BCM and ERM professionals in Latin America.

Future Trends
Based on our experience in Mexico and other Latin American countries, we anticipate that the 2011-2020 decade will witness an improved culture of Disaster Preparedness in both the public and private sectors. We expect increased regulatory emphasis on business / operations continuity management. Business continuity professionals will be challenged to prepare for multiple disaster scenarios in a constantly changing world.

As BCM and ERM professionals, you can expect a commitment from DRI International and DRI Mexico to professional development in the Spanish language, by offering courses and educational events that will help you prepare and lead the business continuity and risk management industry.

BIO: Jorge Escalera (MBA, CBCP, CRM) is a Master Consultant in Business Continuity Management, Risk Management, and Insurance and Surety Bonds. He is Chemical Administrator Engineer from Tecnologico de Monterrey, has a MBA from EGADE Monterrey and is CBCP from DRI, and CRM from The National Alliance. He has more than 25 years of experience focused in Risk Management and Business Continuity Management. Jorge Escalera is one of the Spanish- speaking certified instructors of DRI and CRM. He participates regularly as a speaker in local and international events and is a practitioner of the best BCM practices, including the development of BCP for Pandemics.