Economic conditions the top risk facing firms in APAC

Top of the StrategicRISK Asia-Pacific Benchmark Survey’s top 10 risk list for the second year running is ‘economic conditions’.

Interestingly, it has been rated as more of a problem in 2015 than it was in last year’s survey.

This comes as no surprise to the assistant director of the Office of Enterprise Risk Management at Singapore’s Nanyang Technological University, Jeffrey Yeo, who believes that risks arising from economic conditions should “always be the top most concern of any corporate”.

“A company’s strategic directions and goals have to be fluid and have room for practical and realistic adjustments based on the ever-changing economic environment,” Yeo explains. “Risk managers in fact will be facing challenging times ahead, not just in anticipating such changes, but, most importantly, in developing and implementing the most appropriate controls and mitigating measures in the event that adverse economic conditions do take place. It is not a matter of what takes place, rather it is a matter of when.”

Yeo told SR last year that the interconnectivity of the world’s leading economies was such that the state of health of one had ripple effects on the others. This year’s survey results, he argues, illustrate this concept vividly. “Especially for those entities with a global presence, the company’s strategic directions and goals are greatly shaped by what’s happening and, most importantly, what’s ‘evolving’ around the regions due to that interconnectivity,” he adds.

Examples of this interconnectivity abound. Many Hong-Kong based corporates now find themselves exposed to the shifting demands of Chinese consumers and the economic growth of mainland China.

Indeed, many governments fret more about China’s GDP growth potentional than their own, reasoning that a Chinese slowdown, no matter how fractional, will erode demand for goods and services and damage their economies.

The global economic slowdown has led to increased inflation in Indonesia, while the value of its exports to China and India are declining as a result of their policies to reduce imports. Japanese companies are increasingly shifting their production bases from China and Thailand to countries such as Laos. The Philippines’ economic boom is being challenged by Vietnam and Indonesia, which potentially offer more flexibility and opportunity for business. The list goes on…

‘Some volatility’

Australia-based Scentre Group chief risk officer Eamonn Cunningham says that current economic conditions were “challenging and most would think that the conditions will persist for some time”. “While general confidence appears to be recovering, there is some volatility associated with this,” he adds.

InterContinental Hotels Group head of risk management, Greater China, Keith Xia agrees, pointing out that “many industries are suffering from the uncertain future of the global economy”. “People’s minds have changed regarding the big things that have happened this year,” Xia says. “The change is very interesting as people’s common perception on risk can be changed easily by the external exposure and their knowledge about the risk. For example, if the currency did not change so significantly, there might be fewer companies that list this as a top risk, except for the companies who are truly sensitive to currency.”

Pierre Noel, chief security officer and advisor for Microsoft Asia and PARIMA board member, sees the claiming on top risk by economic conditions as indicative of the world’s current “period of uncertainty”. “We all see that China is slowing, India is not really picking up speed, Japan is still slow, Europe is in disarray, and with US entering into a presidential election year, there is a strong likelihood that economic conditions will not remain optimal,” he argues.

Vietnam-based PARIMA board member Ly Xuan Thu puts it this way: “We are still living in a turbulent time and vulnerable and unpredictable economic system.”

Similarly, associate vice president in the risk management and auditing office of Qisda, Danny Lin, points to the IMF’s latest World Economic Outlook, which he says “foresees lower global growth compared to last year, and the growth slowdown in China is in line with forecasts”.

“Quite a few researchers also predict economic downturn for the coming 2016,” he adds. “This does indicate a long-term challenge, especially in the Asia region.”

But project manager at the Indonesia Port Corporation Rachmadi Gustrian disagrees. He says he prefers to look at as indicative of “a short and mid-term challenge rather than a long-term condition”.