Building a Case for PESTLE Risk Monitoring—See Socio-Cultural Risk More Clearly

As organisations become more reliant on complex networks of suppliers and other third parties, the risks they face also expand. But in order to capture the big picture on risk, organisations need to focus on the small picture—at least when it comes to socio-cultural risk.

Know the Socio-Cultural Risk Factors

Given the scale of today’s supply chains—and growth goals that see organisations expanding operations into new markets—failing to understand global trends, as well as local socio-cultural norms, exposes organisations to considerable risk. What socio-cultural risks are most relevant to you? It depends on a variety of factors—from the specific countries in which your company has operations to the types of products and services you offer.

Most socio-cultural risk factors fall into one of three categories: Demographic, Social/Cultural or Beliefs/Attitudes.

Demographic factors include:

• Population growth rate
• Age distribution and demand changes over time
• Average family size and family structure,
• Social diversity across race, gender, income, and education
• Immigration and emigration rates

As we’ve seen in recent years, for example, immigration is often linked to forced labour which poses a significant reputational risk when uncovered in a corporate supply chain.

Social and Cultural factors include:

• Societal class structure
• Wealth of local population
• Changes in purchasing behaviour
• Economic inequalities
• Level and access to education
• Level and access to healthcare
• Social influencers, i.e., community groups, gangs
• Fashion and lifestyle trends
• Social versus traditional media influence
• Dominant communication technologies
• Mix of local versus imported culture

These risks aren’t limited to emerging markets. Brexit, for instance, is already influencing purchasing behaviors, which could negatively impact company profits.

Beliefs/attitude-based factors include:

• Religion—majority and minority religions, influence of religious leaders on social behaviours and role of religion as a source of engagement or division
• Superstition—beliefs and local mythologies that influence behaviour
• Holiday customs and traditions
• Banking, investing, and saving practices
• Acceptance of diversity of people, countries, companies
• Interpretations of ethical versus unethical behaviour

While these factors seem rather innocuous, the risk is real. Consider, for example, the Chinese custom of guanxi, which is defined as "the system of social networks and influential relationships that facilitate business and other dealings." Traditionally, gift-giving is part of guanxi, but companies must approach it cautiously due to regulations like the U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act. Knowing that social-cultural risk enables companies to avoid improprieties while still building these critical relationships

Addressing socio-cultural risk can be a major challenge for global organisations. Engaging with an entire supply chain—not just the first tier—can be impractical, given the scale of modern supply chains. A more practical approach is to focus on your most important suppliers and particular "hot spots" in the supply chain, such as subsectors like mining or emerging markets that are particularly prone to socio-cultural issues.

By tailoring your approach to the most relevant social issues and establishing a proactive process for monitoring for risk indicators in the news, social media, and other key data sources, you enhance your ability to anticipate and mitigate risk—and keep your company on the right path to growth.

3 ways to apply this information:

1. Watch for the next blog in our PESTLE risk monitoring series—Technological risk

2. Arrange for a free 7-day trial of our PESTLE risk monitoring solution, LexisNexis® Entity Insight

3. Share this blog post with your colleagues on LinkedIn.