E&Y survey points to pricing pressure, cost cutting as top risks in 2013

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Image ChartThe report, based on a 2012 survey of senior executives from 641 companies in 21 countries, is the latest in a series started in 2008 to track the risks and opportunities facing businesses globally.Companies are shifting their thinking away from waiting for an upturn and are concentrating on optimising their business by cutting costs and increasing efficiency, according to an Ernst & Young (E&Y) report released last week “Business Pulse: Exploring the duel perspectives of the top 10 risks and opportunities in 2013.”

Pricing pressure is the biggest risk highlighted by companies in 2013, with the C-suite now accepting that they must find new ways to be profitable in response to shrinking developed markets. This is reflected in companies turning to innovation and rapid-growth markets in order to create new opportunities. This contrasts with 2011 when companies were focused on the risks associated with regulation and compliance, and the most significant opportunity came from the execution of operational strategy.

Rao: Countries in rapid growth markets, like
Malaysia, are now becoming the focus for investments

Commenting on the report’s findings, Philip Rao, Partner, Ernst & Young, Malaysia and ASEAN Risk Leader said, “As companies in developed markets continue to perform at low levels amid recession and sovereign debt problems, the world is now looking to new markets for expansion opportunities. Countries in rapid growth markets, including Malaysia, are now becoming the focus for investments and growth as many global organisations rethink their business strategies.”

High wages and input costs, as well as significant new regulatory burdens on various sectors, mean that cost cutting and the related pressure on profits is cited by respondents as the second-biggest risk they face. Companies now need to make tough decisions on how to cut costs without damaging product and service standards.

For multinational organizations 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.

The number one opportunity 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.

“Innovation and operational agility are the key drivers for organisations, no matter which markets they focus on,” said Philip.

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 – in ninth place, emerging technologies are still considered a top 10 risk.

At a macro-level, the increasing role played by government in business is now cited as the sixth-biggest risk faced by companies, up from seventh place in 2011. This is driven in part by tightening regulations, notably in the financial sector, but it is also prevalent in rapid-growth markets where governments are playing an increasingly active role. This can reshape the nature of competition with government policy and relations, which becomes increasingly important for businesses.

Looking towards 2014 – 2015, E&Y advises companies to be actively engaged with the emerging risks and opportunities in their markets as waiting hopefully for an end to the global economic flux is no longer an option.

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