Financial Risks To Smes Moving Into Emerging-markets

Issue 25

Over the past years, we have seen an unprecedented rise in the fortunes of emerging-market banks: their collective revenues grew from $268 trillion in 2002 to $1,400 trillion in 2012. In addition, for the past couple of years, developed markets effectively exported political and socio-economical risks to emerging markets.

This was perhaps most plainly illustrated by the ‘Brexit’ vote here in the UK, and the unexpected outcome of the US presidential election – both of which triggered volatility in emerging markets and elsewhere.

However, all of these fundamental challenges seem to have been much less damaging for emerging-market considerations. In other words, the highly collective revenue by the banks and the uncertainty, as well as a decrease in domestic investments, maps out a clear conclusion that the exploration of the emerging-markets by fast-growing SMEs has dramatically increased.

However, the mixture of fast growing SMEs’ and global uncertainty, financial risk management has now moved to the top of the agenda for CEOs and their boards.

Via our experience, and a survey conducted by the Risk Management Association on SME practices in enterprise financial risk management, shows there are four main areas of focus:

1. Act on the risk culture across the organisation.

2. Improve the bottom line via enhanced collections processes.

3. Develop innovative risk models through data analytics.

4. Start to deploy more advanced investment allocation approaches.

Carlos Hardenberg, Managing Director at Templeton Emerging Markets Group, highlighted the fact that currencies are once more in retreat. That being said, SMEs in Emerging Markets will start facing some challenges in their day-to-day operations. For example, what if India started imposing capital controls? What will it happen to all of the Software companies from the UK and from the rest of G10 that have outsourced several of their development operations in India?

According to the executives surveyed in the 2016/17, Kroll Annual Global Fraud and Risk Report: “Fraud, cyber and security incidents are now the “new normal” for most international companies across the world”.

Nearly 9/10 executives in the sector reported that their company fell victim to fraud in the past year.

Theft of physical assets is the most prevalent kind of fraud suffered in the sector, reported by 39 percent of respondents.

89% Cyber incidents were also commonplace in the sector;

In the age of big data, nearly a 25% were victims of data deletion by a malicious insider.

57% respondents in the sector reported the occurrence of at least one security incident over the course of the year.

Tommy Helsby, Co-Chairman, Kroll Investigations & Disputes, says: “This year’s Kroll Global Fraud and Risk Report shows that it’s becoming an increasingly risky world, with the largest ever proportion of companies reporting fraud and similarly high levels of cyber and security breaches. The impact of such incidents is significant, with punitive effects on company revenues, business continuity, corporate reputation, customer satisfaction, and employee morale.

With fraud, cyber, and security incidents becoming the new normal for companies all over the world, it’s clear that organisations need to have systemic processes in place to prevent, detect, and respond to these risks if they are to avoid reputational and financial damage.

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