A company is required to redesign their labels and purchase new labeling equipment to identify the country of origin. Which risk classification best describes this risk?

The requirement to change labels and equipment due to a mandate on identifying the country of origin stems directly from governmental or international trade laws. This falls under the category of regulatory risk, which is the risk that changes in laws, regulations, or government policies will adversely affect a business. The company must comply to continue operating legally in its target markets, and failure to do so can result in fines, shipment delays, or market access denial. This is an external risk imposed upon the company, not one arising from its internal operations or product life cycle.

A. Life cycle risk pertains to the stages of a product's existence (e.g., obsolescence), not external legal mandates.
B. Technology risk involves the failure or inadequacy of technology, but the driver here is a regulation, not the technology itself.
C. Proprietary risk relates to the loss of intellectual property or unique business processes, which is not relevant to this labeling requirement.

1. APICS CSCP Learning System (2023), Module 2, Section B, Chapter 2: Risk Management. The text defines regulatory risk as arising from changes in laws and regulations, including customs, trade, and labeling laws.

2. Chopra, S., & Meindl, P. (2016). Supply Chain Management: Strategy, Planning, and Operation (6th ed.). Pearson. Chapter 15 discusses global supply chain risks, explicitly citing regulatory changes (e.g., tariffs, customs requirements) as a major risk category that firms must manage.