Balancing risk key for mainland firms

PUBLISHED : Tuesday, 07 September, 2010, 12:00am
UPDATED : Tuesday, 07 September, 2010, 12:00am

Even as the acute stress of the financial crisis begins to ease, companies are left dealing with some of its lingering effects, and mainland firms are no exception.

A recent survey of 70 leading industry executives and analysts on the mainland by Ernst & Young has found that uncertainty in the global regulatory environment is hampering mainland companies' ability to make decisions and plan ahead. Industry insiders also suggest that the mainland's regulatory authorities relax the country's laws and regulations.

Increasingly robust laws and regulations on the mainland demand higher standards for business operations which, compounded with the global regulatory environment becoming more complex following the financial crisis, makes expansion difficult for mainland companies, they say.

Frank Mei, risk partner at Ernst & Young, says mainland companies must also be aware of increased competition.

'Chinese companies are facing fierce competition in both domestic and global markets,' he says. 'To protect their positions in the marketplace and enhance competitiveness, the ability to manage risk is crucial to success.'

Succeeding in emerging economies has become a strategic imperative as they are likely to dominate global growth. However, there are some inherent strategic and political risks. Mainland companies are facing intensified competition at home and abroad so, by strengthening competitiveness, companies should optimise the mix of products and services they offer, expand their customer bases, and explore new distribution channels, Mei says.

Companies face many threats linked to the management of human capital. International competition for talent poses a treat in some sectors. The mainland is suffering from a shortage of qualified, high-end talent to support its expansion in global markets, while the looming retirement of the mainland's baby boomers and the debate over appropriate compensation structures for them is continuing.

Mainland companies should try to develop a diversified workforce, and adopt multicultural and inclusive policies and strategies, the researchers say.

'Although there is some sense of normality, with firms now refocusing on how to compete for available talent and looking at the risks and opportunities of investing in emerging markets, access to credit is still the second highest risk that businesses face and the risk of a double-dip recession the third. Now is not the time for companies to take their eyes off the ball,' says Eric Chia, Greater China risk leader at Ernst & Young.