Jan 9, 2008

Top 10 risks for Global Business

From the Big Four Blog:

    1. Regulatory and compliance risk
    2. Global financial shocks
    3. Aging consumers and workforce
    4. The inability to capitalize on emerging markets
    5. Industry consolidation/transition
    6. Energy shocks
    7. Execution of strategic transactions
    8. Cost inflation
    9. Radical greening
    10. Consumer demand shifts

    E&Y looks at risks in three broad categories across multiple industries:

    1. macro threats arising from general geopolitical and macroeconomic environments
    2. sector threats from trends or uncertainties in a specific industry
    3. intense operational impacting the strategic performance of leading firms

    I'd like to draw your attention to these risks:

    Aging Consumers and Workforce

    Areas such as asset management and insurance are experiencing dramatic shifts in demand as their consumer age. The auto sector is facing severe competitive challenges as a result of their aging workforces. Numerous industries are experiencing dramatic shifts in demand, often dramatic growth, as average ages rise in Europe, North America, and Japan. To be competitive, companies need to better understand specific needs of these new consumers

    Emerging Markets

    Emerging markets, while great areas for new growth, they also pose great risks. Global companies will need to partner/form networks with firms in many markets. There are also currency, operational, regulatory, language, and cultural risks in these countries, especially as firms manage outsourced business and supply chains in these markets.

    Execution of Strategic Transactions

    There is a major risk that transactions undertaken in response to industry consolidation may fail to deliver, not because they are poorly conceived, but because of a failure to meet operational challenges. Also, new types of strategic transactions, including divestitures in real estate, spin-offs in auto, and separation of telecom companies into utilities and service providers are driving further risk.

    Consumer Demand Shifts
    The failure to anticipate and respond to consumer demand shifts driven by
    demographic shifts, such as growing consumer aging could be a strategic risk when the changes are significant, fast or unexpected.

    The Next 5

    E&Y spells out their next 5, equally critical, yet not making the top 10 list, and my choices amongst them are:

    War for Talent - shortage of technical expertise; asset management and
    real estate, which are seeing talented staff poached by alternative investments; and pharma, which is facing a ‘skills crunch. Especially in emerging markets , growing regional concentration/clustering of talent – while expertise can be found in more nations than ever, within nations it is becoming more concentrated in a small number of clusters. This phenomenon is particularly true in biotech and other high-tech areas. This leads to increasing wage rates, property rental, and competition for expertise.

    Threat of Private Equity’s Rise. Especially in auto, where Private Equity firms are leading unplanned, hostile takeovers by consolidating, and forcing restructuring and creating spin-offs.

    Inability to Innovate is significant for business in 2008. Innovation is becoming an increasingly crucial strategic challenge as markets mature. Stagnation in mature markets means that companies have to innovate to find profit. However, innovation is a substantial risk as nine out of ten new products fail.

    Threat of a China Setback. China might experience volatility as it continues with an
    extraordinary pace of development. A growth slowdown in China could leave oil & gas companies suddenly facing a low oil price environment. A severe slowdown could add to turmoil to world markets or threaten banks or insurance companies with large China exposures; or a natural disaster in China could disrupt global supply chains.

    To effectively combat these risks, Ernst and Young recommends that company leaderships must:

    • Conduct an annual risk assessment that defines key risks and weights probability and impact on business drivers.
    • Go beyond financial and regulatory risk to consider the wider environment in which the organization operates and the full extent of its operations.
    • Conduct scenario planning for the major risks that can be identified and develop a number of operational responses.
    • Evaluate the organization’s ability to manage the identified risks, specifically that risk management processes are linked to the risks that the business actually faces.
    • Effective monitoring and controls processes to provide both earlier warning and improved ability to respond.
    • Keeping an open mind about where risks can come from.

    If you are an employee of a global corporation how can these trends impact your career and employer personally?

    What are you going to do about it?