Strategic Risks Mount for Global Business: Report published by Ernst & Young

Regulation, financial shocks and aging workforce top risks driving fortunes of business in 2008 says new report

New York, 8 November 2007 – The greatest strategic challenge facing leading global businesses in 2008 will continue to be regulatory and compliance risks, says a new report published by leading professional services provider Ernst & Young. These are closely followed by global financial shocks, which have already begun to have an impact with the recent global “credit crunch”; workforce and consumer aging, which will see a number of industries struggling to respond to dramatic shifts in demand and shortages in skilled labor; and the inability to capitalize on the rise of the emerging markets..

The report, “Strategic Business Risk: 2008 – The Top Ten Risks for Global Business”, identifies the top ten global risks across 12 of the world’s most important business sectors, as well as the five fastest-rising threats that could have a significant impact over the next three to five years.

“Not all strategic business risks are the same – they may be macro, sector or operational — nor do they have the same impact in every business sector,” says John Murphy, Global Vice-Chair for Ernst & Young’s Assurance and Advisory Business Services. “This research flags up the fact that all boards must have strategic business risks on their radar. Boards will have to decide where their greatest risks lie and how to deal with them. Ignoring them is not an option.”

“The continually escalating regulatory burden, as well as ever more complex compliance challenges, means this is still the biggest business risk to be addressed,” explains Jim Holstein, Head of Risk Advisory Services for Ernst & Young. “As companies become more and more global, compliance becomes an even greater challenge, forcing them to manage diverse regulations in different markets.”

The report was produced by Ernst & Young in collaboration with Oxford Analytica, and sought the views of more than 70 analysts from more than 20 disciplines. The top ten strategic business risks identified in the report are:

  • Regulatory and compliance risk
  • Global financial shocks
  • Aging consumers and workforce
  • Emerging markets
  • Industry consolidation/transition
  • Energy shocks
  • Execution of strategic transactions
  • Cost inflation
  • Radical greening
  • Consumer demand shifts

The survey also asked the analysts to identify those risks outside the top ten that had the potential to become globally significant within the next three to five years. The five most likely to become serious factors are:

  • The war for talent
  • Disease pandemic
  • The rise (and possible fall) of private equity
  • Inability to innovate
  • China setback

There was no consistent top ten list of risks across all sectors and the nature of risk varied considerably between them, highlighting the importance of sector understanding in driving strategic business risk analysis and management action. However, the survey does bring into sharp focus the critical global issues that can and do impact all businesses, regardless of the sector within which they operate. For those businesses working in more than one sector these take on even greater significance.

Holstein identifies a number of key steps that managers should be taking to minimize the threat posed by these risks. “Be open-minded about where risk comes from and look beyond financial and regulatory risk to the wider environment in which you operate,” he explains. “Conduct annual risk assessments and scenario planning, and then evaluate how well you could really handle those risks if something happened. And make sure you have effective monitoring and control processes so you have early warning of imminent risks. Don’t be taken by surprise!”

“This report is just a snapshot of the risks we see now,” concludes Murphy. “Risks, and the business perception of them, will change over time. If we had done this exercise ten years ago, it is unlikely that climate change would have placed so highly. That is why it is so important for global businesses to be looking at all risks, not just the critical risks of today but also those sitting just below the horizon that could rapidly become critical. Remember, someone’s challenge is frequently someone else’s opportunity – and how you deal with strategic risks is what separates the winners from the losers!”

About “Strategic Business Risk”

The research report sought the views of more than 70 analysts from around the world. They came from over 20 disciplines that shape the business environment, including: law, finance, the sciences, business strategy, geopolitics, regulation, medicine, economics and demographics. They were drawn from 12 of the world’s most important sectors: asset management, automotive, banking and capital markets, biotechnology, consumer products, insurance, media and entertainment, oil and gas, pharmaceuticals, real estate, telecommunications, and utilities. Interviews were open ended and no predetermined list of risks was used. Each analyst was asked for his or her own evaluation of the most important strategic challenges facing global businesses.

About Oxford Analytica

Oxford Analytica is an international consulting firm drawing on over 1,000 senior faculty members at Oxford and other major universities and research institutions around the world. It acts as a unique bridge between the world of ideas and the world of enterprise. Its clients number some 50 governments and international institutions and over 150 Fortune 500 global corporations and financial firms.

About Ernst & Young

Ernst & Young, a global leader in professional services, is committed to restoring the public’s trust in professional services firms and in the quality of financial reporting. Its 114,000 people in 140 countries pursue the highest levels of integrity, quality, and professionalism in providing a range of sophisticated services centered on our core competencies of auditing, accounting, tax, and transactions. Further information about Ernst & Young and its approach to a variety of business issues can be found at Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited does not provide services to clients.

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