Business Pulse: the top 10 risks and opportunities in 2013

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Pricing pressure and cost cutting top the list of business risks for 2013 according to Business Pulse.

The report is part of a series that commenced in 2008 that tracks the top 10 risks and opportunities facing businesses.

Australian companies continue to face same risks since global financial crisis

The survey of senior executives from 641 companies in 21 countries, found that the same risks have dominated the top 10 both globally and in Australia over the last five years. However, there is now a sharpened focus on pricing pressures and cost controls as a result of ongoing economic uncertainty.

The continuing presence of the same risks suggests that companies should question the effectiveness of risk management practices as well as budgets. They should investigate if they have been able to reduce residual risks over time and improve the controls that matter.

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Pricing pressure the most significant risk

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. Pricing risk is pressing in all sectors with global organisations in mining, oil and gas and retail attributing their earnings downgrades on pricing challenges.

Many Australian businesses grappling with pricing pressures are no longer waiting for an upturn, against a backdrop of ongoing global uncertainty. Instead they are increasingly focusing their attention on doing what they can to cut costs and ramp up efficiencies.

Cost cutting and pressure on profits is the second-biggest risk business face, with high wages and capital costs, as well as significant new regulatory burdens on various sectors taking a toll. Looking ahead it will be important for companies 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.

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Innovation will be key

On the flip side, the number one opportunity in the market is innovation, especially within the rapid-growth markets, both in terms of new products or services and within operations. This has been reflected in the increase in research and development spend over the last 12 months, with rapid-growth markets growing four times as fast versus developed markets.

With lacklustre developed market growth as well as fierce price competition, it’s natural that businesses are 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 multi-national 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. 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 equipping themselves against information security threats.

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 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.

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