What risks worry companies doing cross-border business?

Cross border businesses face growth slowdowns and a fight for their long-term sustainability, says a new report from KPMG International.

The audit and accounting firm’s Top risks forecast: Bottom lines for business in 2024 and beyond cites three critical risks likely to impact companies’ company operations this year and beyond:

• Worldwide trade restrictions are rising, with KMPG citing roughly 3,000 restrictions being imposed. That’s nearly triple 2019’s total. A trend towards protectionist policies challenges organizations operating internationally. “Such restrictions can create barriers and hinder economic growth, affecting supply chains and market access,” the report notes. “Organizations should be prepared to…explore alternative strategies to mitigate potential disruptions.”
• Vulnerability is rising due to factors such as geopolitical tensions, rapid technological advancements and climate change. The report notes 91 countries are involved in some form of conflict, up sharply from 58 in 2008. This impacts the global economy and the report’s authors stress prioritization of operational resilience, including “implementing proactive risk management practices, conducting scenario planning, diversifying supply chains and strengthening cybersecurity measures.”
• While artificial intelligence (AI) is transforming industries, there are governance gaps companies must address to ensure it’s deployed ethically and responsibly. “Organizations should prioritize transparency, accountability, and fairness in their AI systems to mitigate potential risks and ensure its responsible integration into their operations,” the report says.

 

Sectors at risk

KPMG’s analysis identifies the global energy and natural resources industry as having the highest risk exposure. Key drivers are tensions in the Middle East and politicization of mineral access by some countries. Infrastructure and financial services firms rank second and third, due to “threats from AI governance gaps and growing economic headwinds.”

Commercial insurance sources speaking with Canadian Underwriter note the large number of national elections taking place in 2024, at least 64 including the recent European Union vote, may create coverage issues for companies doing business across borders.

These risks include contract cancellations for projects and investments tied to foreign treaties, disruption of international financial transaction services, and unexpected shifts in currency values spurred by policy shifts and imposition of tariffs.

 

Global financial health

Meanwhile, KPMG’s analysis of economic sectors finds the energy and natural resources sector fares worst on a financial performance index (FPI). The index is based on data from more than 40,000 companies globally and low scores suggest the sector faces financial stability and performance concerns.

For example, data from the Institute for Economics & Peace attributes the large number of global conflicts to a near 13% drop in global GDP.

“To some extent the COVID-19 pandemic was a rehearsal for some of the broader risks and profound threats facing companies today,” says Stefano Moritsch, KMPG International’s global geopolitics lead.

“Leaders have developed a degree of resilience but, for the first time in modern history, they’re facing challenges on multiple fronts – from conflict to complex regulation, climate change and a ‘patchwork’ adoption of AI in different nations and regions.”

He adds executives at firms doing business across borders must focus on supply chain efficiencies and security, and navigate shifting national industrial and trade policies. He adds differing approaches to AI governance make it impractical for firms to wait for harmonized global regulations.

“On politics – something companies have often shied away from – it’s simply a consideration that now needs to be in the board room. Profit alone can no longer be the only consideration,” says Moritsch. “To effectively navigate the geopolitical risks, organizations and their leaders ultimately need to take proactive steps today to mitigate tomorrow’s potential challenges.”

Feature photo courtesy of iStock/wenjin chen