GLOBAL BUSINESS

Global business

Global business

Global environment and the risks

The Credit Crunch

The credit crunch rose from the number two risk in the 2008 report to number one in 2009 both because of the magnitude of its impact and the unpredictability of its evolution. The credit crunch has forced some leading global companies in the asset management and insurance and banking sectors into insolvency and is undermining business activity in other sectors due to the lack of available credit. This contributes to volatility in financial, currency, and property markets and will be a severe financial management challenge in the coming year. The result of the credit crunch is an overall conservation of capital. Some companies are using this as a time to eliminate duplications and inefficiencies in their systems and to take advantage of existing opportunities. To respond to this risk, companies can develop safeguards to minimize the effects of low frequency, high impact risks on their financial well being. In the short-term, organizations can adapt business plans to be more capital oriented and focus on obtaining cash rather than on growth. (Daniels, J., Radebaugh, L., Sullivan, D. 2007)

Regulation and Compliance

Regulation and compliance fell from the number one risk on the 2008 list but remains important due to the widespread impacts of regulatory intervention across a company's value drivers, its ability to grow and profit, and its competitive situation. Companies in highly regulated sectors and those moving to more regulated areas are most vulnerable. Companies can respond to this risk by adopting a proactive stance, prioritizing it appropriately as a strategic issue and responding appropriately to the breadth of the risk. In sectors with a high degree of regulatory uncertainty, firms also need to perform scenario analysis of future regulatory possibilities and prepare plans of engagement with regulatory authorities to influence policy outcomes. (Daniels, J., Radebaugh, L., Sullivan, D. 2007)

Deepening Recession

This risk is new to the top ten list this year as the global financial crisis has impacted consumer confidence and caused capital flight from emerging markets, increasing the possibility of a truly global recession. The economic downturn creates heightened trade credit risks and threatens revenues, profitability, and valuations across the global economy. Deflation could take hold in major economies due to competitive exchange rate devaluations and a “flight to cash”, driving further debt defaults and losses from falling asset prices. Companies can respond to this risk by developing a major investment strategy based on future scenarios with consistent and comparable assumptions. Geographical diversification is important since countries operate at different points in the market cycle. Balance is also key as companies that successfully emerged from previous downturns focused on reducing expenses without sacrificing their long-term health. (Daniels, J., Radebaugh, L., Sullivan, D. 2007)

Non-Traditional Entrants

The risk of non-traditional entrants moved up from sixteenth on the 2008 list because competitors from distant geographies and adjacent industries are becoming challengers to leading multinationals in some sectors. These challengers sometimes have an advantage due to a deep knowledge of the customers or ability ...