What risks do South African businesses face if expanding globally in the coming year?

Kreston Global has launched its second “interpreneur” report on finding global success as a Small and Medium-sized Entity (SME) and the results have indicated two-thirds (66%) of small and medium-sized business leaders in South Africa anticipate a significant increase in businesses expanding overseas in the next year. With more than half of the participants from South Africa preferring expansion within Africa there are important risk management strategies to consider in planning for a significant global expansion move as a small and medium sized business. By integrating risk management strategies, small and medium sized businesses in South Africa can enhance their resilience against disruptive risks while expanding their global footprint within Africa and abroad.

The three key risks which participants regarded as disruptive or significant during global expansion include the following:

• Effects of the economic slowdown or recession
• Geopolitical tensions and instability
• Risks relating to cyber security risks and data breaches

Risks resulting from technological disruption from use of artificial intelligence (AI) and new technologies was viewed as less significant risks during global expansion by participants.

Impact of risks identified in global expansion

• Lower revenue and profitability
• Difficulty in forecasting cash flow management
• Supply chain disruptions
• Non- compliance with laws and regulations
• Damage to brand reputation
• Disruptions in key business processes.

Risk management strategies in a developing market

Comprehensive risk assessment tools

Conducting a comprehensive risk assessment of potential risks specific to the regions and countries where the business plans to expand would be a key initiation as part of a risk management process. This will require adequate networking with key stakeholders within the region to assess key risk factors relevant to your business. These risks should be reviewed regularly to assess whether mitigation strategies are effective and should be responsive to new emerging risks that the market will experience in the near future. These risks should also continuously be monitored through governance practices within companies on a quarterly basis. Effective controls implemented within the business should sufficiently give assurance that risks have been mitigated to an acceptable level.

Diversification

Diversification of customer target markets and suppliers in businesses has long been a key principle in mitigating risk in an environment which experiences an economic slowdown and geopolitical instability. Over reliance on limited customer bases and suppliers could adversely affect businesses potential revenue streams and supply chain operations. Formation of strategic partnerships with local businesses and organisations that have sufficient knowledge about the local market should be prioritized as a mechanism to assist the implementation of diversification.

IT governance

The mitigation of cyber security risks and data breaches have become more important when implementing an IT governance framework for companies. This would require the implementation of robust cyber security measures, use of cyber security experts, adequate disaster recovery planning, having adequate response plan to potential breaches and adequate training of employees. Monitoring of cyber security risks and data breaches can also be included within the scoping of internal and external audit assignments as assurance providers to audit committees.

Use of AI

The adaptive use of artificial intelligence (AI) is now more accessible to users which can be used to assist in predicting market trends, changes in customer behaviour and various other risks for businesses that are involved in global expansion. The accessibility and tools available on AI to generate information that could complement risk management strategies are proving to be efficient and cost-effective means of accessing relevant information for small and medium sized businesses.

Insurance coverage

Having adequate insurance coverage when entering a new market to enhance mitigation of unforeseen risks is required to protect any business during global expansion and would be fundamental as part of the risk management strategy.

Risk of non-compliance with tax regulations

Finally having a comprehensive understanding of tax regimes both locally and abroad as part the company’s risk management processes would be important to ensure compliance with tax authorities. This will require adequate consultation with tax experts to gain an adequate understanding before structuring the company.

Ashiq Allie CA(SA)

Partner

Kreston Cape Town Inc