Risky business

The coming 12 months look set to provide finance directors with a turbulent
ride as a number of business issues combine to destabilise the global economy.
In light of this, Ernst & Young, in collaboration with Oxford Analytica, has
produced a report, Strategic Business Risk: 2008 – The top 10 risks for
business.

The report draws on the expertise of 70 analysts from around the world and
from more than 20 disciplines that shape the business world, including finance,
law, economics, geopolitics and regulation.

Regulatory & compliance risk
The seemingly never-ending onslaught of compliance and regulation shows no signs
of abating and is seen as the greatest challenge for 2008. The growth of
businesses into more and more countries combined with regulatory intervention in
various industries paints a grim picture.

Global financial shocks
Few industries will escape the impact of major global financial shocks, while
industries such as biotech and utilities will, according to analysts, struggle
to raise capital. Meanwhile, banks, asset management and insurance companies
will suffer direct losses from market movements. If recession hits, oil and gas
companies could well be facing low prices.

Aging consumers & workforce
We’ve known it for a long time, but there still isn’t a clear way of tackling
the risks associated with the grey pound. The issue is two-fold – producing
innovative products that will appeal to an increasingly older consumer and
coping with an aging workforce.

Emerging markets
While undeniably providing huge growth potential – and in many instances, having
already done so – the risks with emerging markets are easy to see. Currency,
operational, regulatory, language and cultural risks are all evident. Recent
events have also illustrated risks with compliance and quality control.

Industry consolidation/transition
Although many analysts are predicting a slowdown in M&A activity, there will
still be plenty to go around. As a consequence, companies must adapt to new
business environments and, if necessary, keep ahead of the competition in any M
&A activity.

Energy shocks
Fluctuations in energy prices and access to supplies are seen as a key challenge
to the energy sector, with short-term losses a real possibility in order to meet
demand. Beyond the energy sector, large swings in energy prices could trigger
economic shocks.

Execution of strategic ­transactions
“Strategic risks often result from an attempt to take advantage of major
opportunities,” says the report. “Nowhere is this more evident than in the area
of transactions.” A frighteningly small number of transactions create value for
shareholders.

Cost inflation
While we have been operating in a low-inflation economy for some time, a return
to high inflation is a major risk. No industry sector would be immune from such
a development.

Radical greening
There are two major risks associated with climate change. First, the challenges
posed by the environment and what business must do to meet them. Second, the
risk that current estimates of climate change are too conservative, which will
result in draconian measures to help cope with new scenarios.

Consumer demand shifts
It is the task of business to identify and respond to changes in demand. Such a
challenge moves to be a strategic risk when the changes are significant, fast or
unexpected.

Useful links
The Ernst & Young report can be found at
https://tinyurl.com/yvyva3

The web seminar in full can be found at
https://tinyurl.com/2ytmqt