The Top 10 Risks for Business

Noiembrie 2010

ERNST & YOUNG S.R.L.

A SECTOR-WIDE VIEW OF THE RISKS FACING BUSINESSES ACROSS THE GLOBE

In today's business environment, conditions remain challenging for many, and risk retains its position high on every organization's agenda. Businesses themselves are changing, which brings new risk horizons and, at the same time, they are grappling with the changes brought about by a post-downturn economy. The ability to anticipate threats, respond and continually adapt is as critical a part of the risk management process as it ever has been.

 

The Ernst & Young business risk radar

Our risk radar is a simple device that allows us to present a snapshot of the top 10 business risks across the 14 industry sectors we covered.

The risks at the center of the radar are those that the executives we interviewed thought would pose the greatest challenge to industry-leading global businesses in the years ahead. The radar is divided into four sections that correspond to the Ernst & Young Risk Universe™ model. Compliance threats originate in politics, law, regulation or corporate governance. Financial threats stem from volatility in markets and the real economy. Strategic threats are related to customers, competitors, and investors. Finally, operational threats affect the processes, systems, people and overall value chain of a business.

 

Executive summary — the global top 10

Aggregating our interview results worldwide and across the sectors, the top 10 business risks for multinational firms that are leaders in their industries are:

1. Regulation and compliance

Regulation and compliance has resumed the Number 1 spot it last held in 2008, with concerns about this risk voiced across the majority of sectors. One of the most current worries among businesses is that the uncertainty surrounding regulation is stalling business decision-making and planning. (Rising from Number 2 in the 2009 report.)

2. Access to credit

Although this risk remains high, viewpoints regarding the availability of credit varied across sectors, with some interviewees indicating that the threat has receded. However, rising levels of government debt may have a strong impact on the cost of credit in the future. (Falling from Number 1 in the 2009 report.)

3. Slow recovery or double-dip recession

Although the financial crisis has abated, a fiscal crisis has emerged in its place. There is no guarantee that global growth will be sustained if stimulus packages are withdrawn. (No change from the 2009 report.)

4. Managing talent

Companies face a number of threats linked to the management of human capital. The global war for talent continues to pose a challenge in some sectors, the approaching retirement of the baby boomers looms over others and, the debate over compensation structures is ongoing, especially in the financial sector. (Rising from Number 7 in the 2009 report.)

5. Emerging markets

With emerging economies likely to dominate global growth, succeeding in these markets has become a strategic imperative. (Rising from Number 12 in the 2009 report.)

6. Cost cutting

Although this risk remains at Number 6, specific concerns among sectors have shifted from last year. Commodity price infl ation and pressure from low cost competitors are now rising challenges. However, pressures to control costs to preserve financial viability have receded. (No change from the 2009 report.)

7. Non-traditional entrants

This risk fell two places from 2009, as higher costs of capital and declining demand sapped the strength of some emerging competitors. Further, incumbent firms in transitioning sectors, having had some years to adjust to new entrants, have been able to shore up their positions. (Falling from Number 5 in the 2009 report.)

8. Radical greening

In the current economic climate, environmental issues are not at the top of the agenda, and this challenge has slipped down the rankings this year. However, companies continue to strive to stay ahead of shifting consumer preferences and government regulation. (Falling from Number 4 in the 2009 report.)

9. Social acceptance risk and corporate social responsibility

Social acceptance and corporate social responsibility (CSR) have become increasingly important over the last decade and it is not a surprise to find this risk entering the top 10 this year. In the current business climate, where there are continuing reputational threats and a rising political backlash, firms will need to tread carefully to maintain (or rebuild) the trust of the public. (New this year.)

10. Executing alliances and transactions

Over the past year there has been a noticeable decline in merger and acquisition activity as finance has become costly. However, rescue mergers in the wake of the financial crisis and regulatory changes that may force new transactions remained topical. (Falling from Number 8 in the 2009 report.)

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