Dependency risk is where you have heavy reliance on a particular product, market, supplier, system, or person. The risk is that this product, market, supplier, system or person fails or disappears such that you can no longer operate effectively. In the case of a product or a market, it means you don’t have a business any more. To reduce dependency risk, you need a corrective control: a Plan B or a back-up.
Sometimes you can see dependency risk crystallising slowly before your eyes, giving you time to act to reduce the risk, or turn it around. A couple of examples:
- By 2040, almost every new car will be an electric vehicle (EV). To produce EVs you need access to lithium and cobalt for the batteries. Lithium comes mainly from Australia but their deals are with China; the main supplier of cobalt is the Democratic Republic of Congo, but 85% of supply is controlled by Chinese companies. By 2040, if you don’t have access to those key elements, you don’t have a car industry. The EU has recognised this and is developing lithium mines in Portugal. Cobalt isn’t critical yet, but there is strategic positioning going on to ensure supply to Europe.
- 90% of the cheese produced in Ireland is cheddar, and more than half of that comes to Britain. Brexit tariffs will mean that Irish cheddar will not be profitable. In the words of one producer “not a gram will be exported”, i.e. Brexit (if it goes ahead) kills that product. Irish farmers recognise this and are starting to turn to producing other cheeses such as mozzarella, jarlsberg, edam and gouda. You can now see water buffalo (for mozzarella) in the fields of County Cork…
Story sources: The Times newspaper, The Economist magazine