The BDO Global Risk Landscape Report describes a changing environment of constant crisis, where organisations must remain alert and ready to respond to a wide range of risks. As part of the global risk ecosystem, New Zealand is certainly impacted by international activities – but there are some areas where we are more or less exposed than our counterparts overseas.
Here we explore the major themes emerging from the BDO Global Risk Landscape Report and consider how they apply to the New Zealand business sector.
Major risks facing business leaders globally
The BDO Global Risk Landscape Report 2024 highlights an evolving risk landscape and identifies the six risks business leaders are least prepared for:
- Regulatory risk
- Supply chain
- Geopolitical tensions
- Economic slowdown/slow recovery
- Cyberattacks and computer crime
- Technological development
BDO Risk Advisory National Leader Tarunesh Singh says New Zealand is not being impacted by all of these risks to the same extent that our overseas counterparts are:
| "We see some similarities with our own risk landscape in New Zealand, especially with economic challenges and cyber crime. However, we aren't yet seeing the same impacts of regulatory risk, supply chain and geopolitical tensions. Reasons for this include New Zealand’s relatively isolated geographic location and the scale of businesses here compared to international markets. What impacts large-scale American and European companies will not necessarily impact smaller local New Zealand businesses in the same way.” - Tarunesh Singh, BDO Risk Advisory National Leader |
An example of this is supply chain risk. The Global Risk Landscape Report points to the Suez Canal disruption as a reason for supply chain concerns becoming more heightened for businesses. However, our recent BDO Business Wellbeing Index shows business leaders are less worried about supply chains than many other business performance metrics, with 50% of business leaders feeling positive about supply chains (compared to 27% who feel positive about economic factors and 40% who feel positive about political factors).
Similarly, much of the regulatory change and uncertainty faced by overseas businesses may not yet be present in New Zealand. Aotearoa is certainly facing its own questions around regulation – including ongoing discussion of the Holidays Act and Fast Track Approvals Bill - but New Zealand businesses are often not subject to the same levels of regulatory change as companies governed by EU (European Union) or American laws. And with many major international elections coming up in the coming months, it’s unsurprising that overseas businesses are more concerned about regulation and geopolitical tension.
Key global risks for New Zealand business leaders to consider
As with the global risk landscape, New Zealand business leaders are faced with an ever-changing, ever-growing list of risks to contend with. In particular, we’re seeing three risks from the Global report reflected prominently in our local landscape:Economic slowdown
The BDO Global Risk Landscape Report shows an economic slowdown or slow recovery is third-equal in the rankings of risks leaders are least prepared for, noting “economic conditions remain choppy, with organisations having to contend with inflationary pressures impacting production costs and their customers’ buying power.”This reflects what we’re seeing in New Zealand, where although a 0.2% rise in GDP in the March quarter has seen us technically lift out of recession, things still feel very sluggish. People are feeling the squeeze in terms of their household incomes and discretionary spending, and this pressure inevitably filters through to businesses. Stats NZ figures from April show retail card spending fell for the third consecutive month on a seasonally adjusted basis, and we know from our latest Business Wellbeing Index that business performance has been a challenge for the retail sector long before this year.
| “Increasingly, businesses are focusing on reducing costs and protecting themselves against losses, tightening budgets and proceeding with caution when it comes to committing to spending. The good news is that inflation is coming down, although operational costs are still high and consumer confidence has fallen. It will likely take some time for the New Zealand economy to pick back up, so businesses must prepare to weather this storm for the rest of the year, and possibly longer.” - Tarunesh Singh, BDO Risk Advisory National Leader |
Tips for facing into an economic slowdown and slow recovery
- Keep an even closer eye on your finances and ensure your budget is robust. If your budget cycle started six or more months ago, re-forecast it in line with the current conditions and monitor it weekly, along with your cashflow. Look at your forward workflow, establish what your realistic month-by-month income will likely be, and get a handle on your fixed and variable costs, especially salaries. By knowing your numbers, you’ll be better prepared to ride out this economic period.
- Reevaluate your business strategy in line with the current conditions and consider what you can do now to continue moving towards your business goals.
- Plan for different scenarios and how your business would respond in each - for example, if interest rates remain steady or rise, if consumer confidence remains low or if turnover is lower than forecast. While you can’t control the economy, you can focus on understanding the economic risks facing your businesses and take steps to mitigate them – or minimise their impact.
Fraud
The BDO Global Risk Landscape Report says fraud risk is less of a concern for C-suites now than it was in 2023. In New Zealand, we’re seeing a different position. A slow or weakened economy often gives rise to opportunistic fraud, and this certainly seems to be the case here - CERT NZ’s 2023 annual summary shows a significant increase in the amount businesses and organisations lost to scams and fraud in 2023 compared to 2022.“While sophisticated international fraud networks do pose a real threat to Kiwi business and consumers, the main type of fraud we’re seeing is internal, where employees unlawfully extract money from their employers. Typically, this involves people committing payroll fraud, invoice fraud or other forms of procurement fraud,” says Tarunesh. “Positively, we’re seeing more businesses take a proactive approach towards fraud prevention, putting core financial controls - checks and balances - in place to stop internal fraud from occurring.”
Tips to prevent against fraud
- In many cases, the root cause of fraud is a lack of structure and rigour around procurement controls and processes. Businesses must ensure they have these in place to avoid being exploited, both internally and externally.
- Consider having an external review of your procurement and payment systems to ensure your processes are robust. This exercise may also reveal quick wins to help prevent fraud and improve processes.
- Put fraud prevention on the radar of those at the highest levels of a company, including the Board and audit committee. Conduct regular employee training on fraud prevention and detection and your financial processes.
Cyber security
Many business leaders are suffering from cyber fatigue, according to the BDO Global Risk Landscape Report. Organisations are investing huge amounts of time and money into researching, preventing and responding to various cyber threats and activities, and it increasingly feels like it’s impossible to avoid breaches and attacks. Artificial intelligence (AI) is evolving rapidly and while it presents opportunities for businesses, it also poses many risks. Malicious AI has the potential to make hacking easier and more insidious, while even in the well-intentioned hands of employees AI can be problematic – think staff members entering sensitive data into unsecured AI tools and chatbots.| “While leaders may be fatigued by cyber security, cyber crime remains one of the key risks for business leaders globally and in New Zealand. And although businesses may never get ahead of the cyber curve, it’s a normal part of doing business now – any company that holds data, uses e-commerce systems, or has any sort of network of any sophistication must have systems and processes in place to monitor cyber risk,” - Tarunesh Singh, BDO Risk Advisory National Leader. |
Larger or more complex organisations may need to have embedded cyber security functions in place, but not all businesses will need or want this level of support. In those instances, an external party can be engaged to conduct a core security review, looking at the fundamentals of security across the network and providing advice to make improvements. From there, any further action that may be required can be taken in a prioritised way. Most importantly, cyber security should be considered an essential and routine part of doing business.
Tips to stay on top of cyber security
- Keep a close eye on the AI tools being used across your organisation and conduct training to help employees understand what is and isn’t safe to share with AI chatbots. Educate your staff on the importance of critically analysing and fact-checking the results provided by such tools. AI content generation tools are trained by online data, and it goes without saying that not all information on the internet is accurate.
- If you don’t have an internal cyber security resource, seek external advice on your tech stack and your cyber security posture. As technology is rapidly evolving – along with regulations around data privacy - it’s important to conduct this type of assessment regularly.
- Investigate how technology and security measures, including firewalls, access controls and encryption, can assist you in detecting and investigating anomalies.
Preparing for and responding to risk
The BDO Global Risk Landscape Report 2024 discusses the importance of taking a proactive approach to risk, welcoming disruption and turning it into a competitive advantage. In New Zealand, we’re seeing more SME businesses increasing their awareness and effort when it comes to risk management. Increasingly, disruption is a normal and constant part of doing business, and risk management is now something businesses treat as part and parcel of their operations.| “If the last few years have taught us anything, it’s that there are curveballs around every corner, so you can’t afford to take a purely defensive risk management position. Business leaders need to know as much as they can about their own risk landscape, how risks might impact them, and how they can use these risks to take opportunities to get ahead.” - Tarunesh Singh, BDO Risk Advisory National Leader |
Looking for more assistance with risk? BDO New Zealand's dedicated Risk Advisory service can help to develop and implement structured risk management strategies, as well as carry out independent process and control reviews to give you a degree of comfort on what you do and the way you do it.
View the BDO Global Risk Landscape Report 2024
