Global Economy
Firms unprepared for emerging currency and regulatory risks says Economist Intelligence Unit
By Finfacts Team
Mar 23, 2011 - 4:42 AM

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New research suggests that many firms are not sufficiently prepared to deal with the risks they most fear. A worldwide survey of business executives, commissioned by the Royal Bank of Scotland and conducted by the Economist Intelligence Unit, finds that firms are currently most concerned about currency fluctuation.

However, while 51% of survey respondents cite currency risk as a key concern, only 43% say their firm has a strategy in place to counter it. Similarly, although 22% of firms across the world are concerned about the risk of new regulation, only 13% have a plan in place to deal with it.

The survey results also suggest that firms may be guilty of overconfidence about their capacity to deal with risks when they arise. More than 30% of respondents who were hit by a 'severe risk' that materialised over the past 12 months experienced a decline in revenue at their firm of between 11% and 25%. Despite this, the vast majority of respondents are either 'highly confident' or 'somewhat confident' that their firm can navigate risk over the next 12 months.

"Events in Africa, the Middle East and Japan underline why it's so important for businesses to have strategies in place to help them deal with emerging risks," says Chris Webber, the report's editor. "Our research suggests that some businesses may have a preparedness gap when it comes to currency risk. If there are major currency fluctuations over the next 12 months, many companies could end up suffering more than they need to."

Other key findings include the following:

  • Perceptions of risk vary significantly from region to region. For example, 38% of respondents from the Asia-Pacific region think fraud and corruption is a key risk over the next 12 months, but this falls to 18% in Western Europe and just 10% in North America.

  • A significant minority of firms are increasing their appetite for risk. Pressure from investors means that managers are cautiously increasing their appetite for risk. In the area of business and strategic risk, 34% of firms plan to increase their risk exposure in the next 12 months, and this figure rises to 45% in the banking sector.

  • Longer-term shifts in risk management are underway despite resource constraints. 75% of executives polled say that risk considerations are playing an increasingly important role in strategic thinking at their organisations, but few firms are increasing the resources available for risk management.

The Risk Radar: How firms are navigating risk is an Economist Intelligence Unit report commissioned by the Royal Bank of Scotland. The research is based on a worldwide survey, conducted in October-November 2010, of 275 senior executives spread across a range of industries. 154 respondents represent firms with US$500m or more in annual global revenue. 36% of voters were from companies with annual revenues in excess of $1bn. 52% of executives surveyed are C-level (CEO) or equivalent and the others are directors or senior managers. 130 respondents are from the finance function.

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