A map of countries facing the greatest risk of terrorism. (Image via The Telegraph)
One basic law of economics dictates a direct relationship between investment reward and risk.
Buying US Treasury bonds for example is widely considered one of the safest investments possible, and as such the resulting interest rate is one of the lowest on the market. At the other end of the spectrum, startup funding is a relatively riskier endeavor, which is why investors in that field typically expect much higher reward.
The point is that risk goes hand in hand with investment, and information about risk is therefore critical for proper decision making. The supply of such information is referred to as the Risk Intelligence industry. Given continuing investment interest in regions that present high levels of political risk, political risk intelligence constitutes a large and expanding market that offers a number of entrepreneurship opportunities; this is particularly true for startups operating out of “risky” areas, such as some countries in the MENA region.
Actionable information makes it easier to assess risk. (Image via Greattechpros.com)
Risk intelligence can include individual risk through credit scoring (e.g., using the services of Equifax, Experian, or TransUnion), going through technology analysis and due diligence to identify the success prospects of innovations under implementation, all the way to political risk relating to the geopolitical environment in which the investment is being made.
It comes as no surprise that recent world political events like the September 11 attacks, terrorist attacks in various countries, and regime changes in the Middle East have made political risk intelligence ever more necessary.
Looking at developing countries alone, more than $300 billion in capital expenditures are expected to be subject to political risk through the year 2025. The fact is that those countries command an increasing interest by investors, which creates a growing market for associated risk intelligence.
A chart of countries that get the most foreign direct investment. (Image via The Guardian)
Volatile conditions create an opportunity for a plurality of players to offer risk related services. This includes consulting firms advising their customers on government stability, or travel safety conditions (ControlRisks, Kroll, Stratfor, Verisk).
It also includes Information Services firms (IHS, Platts, EIU, Oxford Economics) which cater to the strategic business planning of international corporations in terms of infrastructure investment risk or insurance premium calculations. It encompasses software companies that provide ways to generate risk related data and process it, analyze it, or visualize it.
Simply put, risk intelligence is about information collection and processing. Traditional methods have consisted of assembling teams of human experts, whether in private businesses or in government agencies. The increasing availability of software solutions targeting that sector is often being used to supplement, if not replace that approach. Still, the value chain remains unaltered: once information is collected, it has to be cleaned, verified, categorized, and then subjected to analysis that can result in actionable information for the target audience.
One interesting dimension however is that developing countries, such as some in the MENA region, suddenly present competitive advantages for startups based in this part of the world, and which aim to cater to the risk intelligence sector. This is because risk assessment is to a large degree about local expertize.
Beyond the necessary human skills and software solutions that may be leveraged to collect and analyze information, a local presence brings dimensions of granularity, speed of verification, and accuracy that can surpass what can be achieved by being at the other side of the world. This argument pertains to data generation (language and cultural knowledge as well as physical proximity to events unfolding), but it also relates to analysis and processing of information.
Risk data needs to be collected, verified, categorized and analyzed before action can be taken. Risk intelligence startups near the action have a competitive advantage. (Image via Projection Point)
Local technology startups looking to enter this market can develop a number of region-specific competitive advantages. Language knowledge is a strong asset to boast for value propositions in this field, particularly because nuances and accuracy are often best achieved by native speakers, regardless of whether the work is done on paper or by tuning data crunching software.
Geographic knowledge is often equally critical with local teams being able to capture details that remote firms cannot. The final stage of information slicing and dicing for presentation to various audiences benefits the most if those target end users are customers located in the same region as the one the startup is operating from, simply because the offer can be tailored in accordance with cultural considerations, business practices and interests and other local aspects of relevance to those customers.
The takeaway is that there is an already large market that is being expanded in unprecedented ways, and this creates entrepreneurship opportunities.
As I argued in a previous article, many startups in the region have so far limited themselves to relatively basic content creation services aimed at local markets. Far from advocating the establishment of “spy networks”, the aim here is to bring attention to the opportunity for leveraging local presence in combination with technology to cater to international content consumption segments, particularly in Europe or North America.
When it comes to risk intelligence, a significant gap remains, if only in terms of data collection, processing and analytics, information visualization, and bridging the risk intelligence world with other applications such as supply chain management, financial analysis tools, news and media, and insurance IT solutions.