‘Acute uncertainty’ lies ahead for business in 2017
The year ahead will be one of the most difficult for business' strategic decision making since the end of the Cold War, warns Control Risks.
The year ahead will be one of the most difficult for business' strategic decision making since the end of the Cold War, warns Control Risks.
Surprises over the past 12 months-principally the UK vote to exit the European Union (EU) and Donald Trump’s victory in the US presidential elections have tipped the balance to make 2017 one of the most difficult years for business’ strategic decision making since the end of the Cold War, says Control Risks.
The global risk consultancy warns that a year of strategic uncertainty lies ahead in its just-published annual RiskMap forecast.
“The catalysts to international business – geopolitical stability, trade and investment liberalisation and democratisation – are facing erosion,” says Richard Fenning, chief executive officer (CEO) of Control Risks. “The commercial landscape among government, private sector and non-state actors is getting more complex.”
The firm suggests that high levels of complexity and uncertainty attached to the key political and security issues for the year mean that boards will need to undertake comprehensive reviews of their approaches to risk management.
Control Risks has identified the following key business risks for 2017:
“Digitalisation and the internet of everything takes risk everywhere and the distinction between safe home markets and dangerous foreign ones has largely gone,” adds Fenning. “The sheer mass of stored data, teetering on a fulcrum between asset and liability, has shifted the gravitational centre of risk.
“Terrorist attacks across continents in 2016 made possible in large part by the internet have shown that Islamist inspired violence can be planned and carried out anywhere in the world.
“With the seismic shift in risk scenario planning now required by businesses, we can expect the competitive playing field in many industries to see significant change as organisations respond in different ways to the multitude of complexities facing them.
“By the end of 2017 we will know whether or not the global economy withstood the shocks and turbulence of 2016, if the US opted for a new definition of how to exercise its power and if the great experiment in globalisation remains on track.”
Arks, sharks and whales
Control Risks predicts that companies will pursue different strategies to protect value and seize opportunity in 2017 and that “many organisations will be defined as Arks, Sharks or Whales by their response.”
Arks will be defensive and focus on core businesses and markets. They will shed non-performing assets, reverse unsuccessful mergers, cut costs, and delay expansion. While particularly associated with mining and oil and gas due to the collapse in commodity prices, the Ark strategy also characterises retrenchment by retailers and re-shoring by manufacturers.
Sharks are less risk-averse and will hunt for opportunities in new activities and locations. Financial services, facing regulatory uncertainty and the rise of competing power centres in the emerging world, is likely to take on risk to capture first-mover advantages in frontier markets or disruptive sectors such as financial technology (fintech).
Whales will take advantage of their deep pockets and cheap financing to engineer mega-mergers and monopolise markets. Their main risks are economic nationalists and competition regulators. Consolidation strongly characterises the technology sector, pharmaceuticals, and agribusiness, which have often arbitraged regulatory environments to gain dominant market positions.