Australian companies continue to face same risks since global financial crisis

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Thursday, 14 March 2013 - Pricing pressure and cost cutting top the list of business risks for 2013 according to a new report by EY.

The EY report based on a survey of senior executives from 641 companies in 21 countries including Australia, Business Pulse: Exploring the duel perspectives of the top 10 risks and opportunities in 2013 and beyond is the latest report in a series started in 2008 to track the risks and opportunities facing businesses globally.

EY Asia-Pacific Risk Leader Rob Perry said the past five years have seen the same risks dominate the top 10 both globally and in Australia, with a more sharpened focus on pricing pressures and cost control this year given ongoing economic uncertainty.

“It’s time to question the effectiveness of our risk management practices as well as budgets, and companies should be asking themselves if they have been effective in reducing residual risks over time and improving the controls that really matter,” Mr Perry said.

In 2013, pricing pressure is the biggest risk ranked by companies, both globally and in Australia, with executives now accepting they must find new ways to be profitable in response to shrinking developed markets.

“Australian business is all too familiar with the fact they are operating against a backdrop of ongoing global uncertainty so now they are no longer waiting for an upturn, instead increasing their focus on doing what they can to cut costs and ramp up efficiencies,” Mr Perry said.

Mr Perry said high wages and capital costs, as well as significant new regulatory burdens on various sectors, meant that cost cutting and pressure on profits was the second-biggest risk business faces, with companies needing to make tough decisions on how to cut costs without compromising product and service standards.

“This is in contrast with 2011 when companies were focused on the risks associated with regulation and compliance, and the most significant opportunity came from optimising their operational strategies.

“On the flip side, the number one opportunity in this market is innovation, especially within the rapid-growth markets, both in terms of new products or services and within operations. This is reflected in research and development spending in rapid-growth markets growing four times as fast versus developed markets,” Mr Perry said.

“With lackluster developed market growth as well as fierce price competition, it’s natural that the world is looking to new markets for expansion opportunities. But to exploit these rapid-growth markets, companies must align the opportunities directly to their risk appetite. It is not a question of how companies get into these markets; it is a question of how they succeed.”

For multinational organisations trying to balance the desire for cost competitiveness in key markets, as well as growth in new markets, rethinking the cost and location of operations from a global perspective can create opportunities. As a result, operational agility is crucial to surviving and flourishing in a volatile world economy, with executives in developed markets citing this as their second-biggest opportunity.

Companies are also embracing the emergence of new marketing channels, such as social media, which is ranked as the fourth-greatest opportunity for business, up from eighth overall in 2011. This was especially true of companies operating in rapid-growth markets, but inevitably, there are risks too, and emerging technologies are still considered a top 10 risk in ninth place, although this is down from fifth place in 2011.

“For all the steps that companies have taken around cloud computing, social media, mobile and other emerging technologies, they continue to fall behind in arming themselves with against information security threats creating a gap that grows ever larger,” Mr Perry said.

“As our research highlights, companies are increasingly reconciling themselves not only to a long-term downturn in developed markets, but also to their increased exposure to a volatile world economy and markets.

“In turn, this new state of play brings with it both ongoing risks and opportunities that companies must actively engage with and plan for, as many of these major economies are closely interconnected and waiting for an end to global economic uncertainty is no longer an option,” he added.

Top Risks for 2013

  1. Pricing pressure
  2. Cost cutting and profit pressure
  3. Market risks
  4. Macroeconomic risk: weaker or more volatile growth outlook
  5. Managing talent and skill shortages
  6. Expansion of Government’s role
  7. Regulation and compliance
  8. Sovereign debt
  9. Emerging technologies
  10. Political shocks

For more information and to download the report, visit www.ey.com/businesspulse

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Contact details:

Katherine Rellos
EY Australia
Tel: +61 3 9288 8322 or 0411 245 099