Risk in Emerging Markets

By Anders Søborg, Ernst & Young Advisory Services Denmark

How are companies from developed markets managing risk as they invest and operate in emerging markets? Ernst & Young surveyed over 900 companies to build a picture of best or leading practice.

The survey deals with key principles for managing risk in emerging markets. Although it is not a framework to follow, establishing a risk culture, improving communication, and aligning organization structure and risk management processes can set a strong foundation for better risk management.

Ernst & Young also identifies ten of the key ‘risk management lessons’, taken from executives’ experience across emerging and developed markets. Some key findings from the survey:
• The main goal in emerging markets is growth. Companies have moved on from the traditional view that the primary objective of investment in emerging markets is cost saving.
• Risk priorities differ by location. Developed markets focus on political, operational, and supply chain risk. Emerging markets are more likely to focus on market, competitive, and pricing risk.
• Board focus does not always translate into strategy. There is a consensus that Boards are giving enough attention to risk in these markets. However, only 41% of developed market companies have a risk strategy for emerging markets.
• Opinion differs on risk communication. While 71% of emerging market subsidiaries feel they provide sufficiently regular and robust information on risk, only 44% of the parent companies would say the same.
• Opinion also differs on internal audit. Developed market companies have less confidence in the quality of the internal audit testing of their subsidiaries than the emerging market subsidiaries themselves do.

To learn more about the survey you can contact Anders Søborg, manager, Ernst & Young Advisory Services Denmark.

Mobile + 45 51 58 25 16, Phone + 45 35 87 25 16, Email: anders.Soeborg@dk.ey.com