Price of raw materials is top business concern in Asia Pacific

 

Global Risk Index suggests short-termist outlook leaves businesses exposed

Price of materials is now seen as the number one threat to Asia-Pacific business according to the third Lloyd’s Risk Index. 

The survey of more than 500 of the world’s most senior business leaders also suggests Asia-Pacific executives are more focusing on pressing problems including increased material costs and high taxation, rather than longer-term strategic decisions.

First published in 2009, this year’s Risk Index – run in conjunction with Ipsos MORI – provides an in-depth picture of how Asia-Pacific business leaders prioritise and prepare for major risks:

The price of raw materials is seen as the top risk, reflecting the importance of manufacturing to the region, and the rising cost of materials across a range of sectors. It has soared up the Risk Index ranking from 12th to 1st place in the last two years

High taxation is identified as the next biggest risk faced by business leaders after prolonged public and political exposure and debate. It was previously 17th in the priority rankings

The Asia Pacific region is proving slower than others to wake up to the threat of cyber risk. Cyber risk is the 8th highest priority in Asia-Pacific, compared to 3rd globally

Currency fluctuation remains a high priority (although it fell slightly from 2nd place to 3rd), due to potential impact on the prices of Asia Pacific exports

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In response to the findings, Lloyd’s Chief Executive, Richard Ward, is warning that focusing on near-term issues at the expense of longer-term strategic decision making can leave Asia-Pacific organisations over exposed to future business challenges.

Richard Ward said: “With costs of many raw materials rising, businesses in the Asia Pacific region are understandably concerned about managing this expenditure. Yet the danger is that an emphasis on near-term, operational issues comes at the expense of significant, strategic decisions that have previously exercised business leaders.”

“With the timetable for global economic recovery likely to be much longer than we hoped, a focus on long-term sustainability and effective risk management should be a priority for boards across the world.”

The Index reveals how the relationship between preparedness and prioritisation of risks has changed in recent years, as well as the diverging approaches taken by large and smaller companies:

Over the last 5 years, business leaders have developed a more sophisticated and proportionate approach to risk management. In 2013, across the 50 key risks, those given a higher priority score are also given a higher preparedness score, while risks ranked lower in priority are ranked lower in preparedness.

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In 2013, company size is the biggest differentiator in risk perception and management. In 2009, large and small companies had a more comparable view on priority and preparedness across all risks than in 2013. Now, smaller companies give all risks lower priority (10% below average) compared to larger companies (8% above average).

The Risk Index highlights some notable changes since 2011 across the 50 risks facing businesses:

2013 top five risks in the Asia-Pacific region   2011 top five risks in the Asia-Pacific region
Price of material inputs (up from 12th in 2011)    Talent and skills shortage
High taxation (up from 17th in 2011) –  Currency fluctuations
Currency fluctuation (down from 2nd in 2011) Inflation
Inflation (joint 3rd position; equal to 2011) Loss of customers/ cancelled orders
Loss of customers/cancelled orders (down from 4th in 2011)   – Reputational risk

For more information on the top risks facing business today, please visit

www.lloyds.com/riskindex or contribute to the debate on Twitter using #RiskIndex.

About the research

Methodology

The survey asked 588 C-suite and Board level executives about their attitudes to 50 risks across five categories:

Business and strategic risk

Economic, regulatory and market risk

Political, crime and security risk

Environmental and health risk, and

Natural hazard risk.

Respondents were asked to rate both the overall risk category and a number of specific risks within each of the overall categories for both their corporate risk priorities and for the degree of their business’ preparedness to manage those risks. A score was calculated for each, with zero being the lowest level of priority or preparedness and ten being the highest.

Survey respondents were distributed across Asia Pacific (31%), Europe (28%), North America (26%), and Latin America (10%) and the research was conducted between 9th April and 17th May 2013. 77% of respondents represent smaller businesses with an annual turnover of $US499million or less, and 23% from larger companies with an annual turnover of US$500 million or more.  

About Lloyd’s of London

Lloyd’s is the world’s specialist insurance market and occupies fifth place in terms of global reinsurance premium income, and is the largest surplus lines insurer in the US. In 2013, 89 syndicates are underwriting insurance at Lloyd’s, covering all classes of business from more than 200 countries and territories worldwide. Lloyd’s is authorised under the Financial Services and Markets Act 2000 and regulated by the Financial Conduct Authority and Prudential Regulation Authority.

 

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