KPMG International: The Biggest Risks Hitting Businesses

Businesses operating across borders face the prospect of slow growth and a tough task when it comes to achieving long-term sustainability.

That’s according to the latest research from KPMG International, which shines a light on the various complex challenges facing companies looking to grow internationally at a time of geopolitical tension, conflict, economic uncertainty, technological advancement and increasing divergence on regulation.

The report identifies the three most critical risks which are likely to impact operations this year and beyond:

• Trade policy restrictions
• Vulnerability calling for operational resilience
• AI governance gaps

“Last year alone, 91 countries were involved in some form of conflict, which led to an almost 13% hit on global GDP, according to data from the Institute for Economics & Peace,” explains Stefano Moritsch, Global Geopolitics Lead at KPMG International.

“To some extent the COVID-19 pandemic was a rehearsal for some of the broader risks and profound threats facing companies today. 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.”

KPMG’s top three risks

1. Trade policy restrictions: With around 3,000 global trade restrictions imposed – almost tripling since 2019 – organisations operating in international markets have been presented with numerous challenges. KPMG highlights that such restrictions can create barriers and hinder economic growth, affecting supply chains and market access. As a result, companies must be prepared to navigate these trade policy restrictions and explore alternative strategies to mitigate potential disruptions.
2. Vulnerability calling for operational resilience: The current geopolitical landscape is characterised by increasing vulnerability – driven by various factors such as the aforementioned geopolitical tension and rapid technological advancement, not to mention climate change, and geopolitical tensions. The number of countries involved in some form of conflict in 2023 was up by a staggering 57% compared to 2008, hitting GDP hard. KPMG says that, to mitigate the risks associated with vulnerability, organisations must prioritise operational resilience. This involves implementing proactive risk management practices, conducting scenario planning, diversifying supply chains and strengthening cybersecurity measures.
3. AI governance gaps: It goes without saying that AI has become a transformative force across industries, with investment increasing more than fivefold between 2013 and 2023. Despite the immense opportunities presented by AI, it also brings about governance gaps that businesses can ill afford to ignore. Deploying emerging technologies like Gen AI in ethical and responsible fashion is crucial in order to maintain trust among stakeholders. KPMG says firms should prioritise transparency, accountability and fairness in their AI systems to mitigate potential risks and ensure its responsible integration into operations.

KPMG recommends leaders take proactive steps

KPMG’s team of geopolitical experts and global sector heads have also developed a heatmap looking at the impact of the top risks on individual key sectors. 

The analysis reveals the world’s energy and natural resources industry is the most exposed to risks, driven especially by uncertainty in the Middle East and increasing politicisation of access to minerals and crucial resources. 

Infrastructure and financial services follow in second and third, with both facing threats from AI governance gaps and growing economic headwinds.

The energy and natural resources sector also recorded the lowest Financial Performance Index (FPI) score, which measures financial health based on data from more than 40,000 companies globally. A lower score suggests underperformance and potential financial instability.

“The data may make for some sobering reading for business leaders, but there are actions they can take to ensure long-term viability and sustainability,” adds Stefano. 

“CEOs and other senior executives need a laser focus on supply chain efficiency and security, while navigating complex national industrial policies and trade measures. 

“To effectively navigate geopolitical risks, organisations ultimately need to take proactive steps today to mitigate tomorrow’s potential challenges.”

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