Companies Struggle to Manage Risk in Emerging Markets, Study Finds

Despite a continuous boom in businesses’ investments into emerging markets, a fair number of companies fail to manage corresponding risks effectively, a new survey by professional services provider Ernst & Young finds.

The survey, dubbed, “Risk Management in Emerging Markets,” comprises results from interviews with more than 900 senior executives responsible for risk management in either international headquarters or emerging market operations. The study also portrays key factors that can help companies in the emerging markets to successfully manage risks.

Among other highlights, the survey shows that attitudes towards risk priorities vary between the view of developed market headquarters, which are more likely to worry about political risks (40 percent), and that of management in emerging market business, which tends to focus on more immediate risks like market and competitive risk (41 percent), and currency (28 percent).

“Those closest to the risk are able to assess what needs to be done and take steps to reduce exposure. But they are also the least well placed to compare performance with other markets and develop benchmark guidance." -- Inge Boets, Ernst & Young

Still, the risk concern does not reflect consistent risk management strategies, the study found. About 56 percent of developed market companies say they have no strategy in place to manage risk in emerging markets. North American companies were found the least likely to have a strategy in place to manage risk, as only 25 percent have a strategy, compared to Europe (46 percent), and the Far East (52 percent).

“What becomes clear is risk has to be managed locally and emerging market businesses do seem to be more active in managing across all risks than developed market businesses,” Inge Boets, global head of Business Risk Services for Ernst & Young said in a statement. “Those closest to the risk are able to assess what needs to be done and take steps to reduce exposure. But they are also the least well placed to compare performance with other markets and develop benchmark guidance. There is a real opportunity for parent companies to provide this framework in support of local managers.”