New Delhi, Apr 1 (UNI) Intense global competition and rapid growth are forcing Indian firms to examine corporate enterprise risk management (ERM) especially in Europe, Australia and North America, where the process is more mature, concludes a report.
ERM is a cohesive, enterprise-wide process allowing companies to identify, assess and respond to the social, political and economic risks of doing business.
The study by The Conference Board examines the state of risk management integration in companies based in India, and includes case studies of four major India-based multinational firms--Tata Motors Ltd, ICICI Bank, Tata Chemicals Ltd, and Dr Reddy's.
Speaking at the report launch KPMG Chief Operating Officer Richard Rekhy said, ''Organisations today have grown significantly larger in size. Market capitalisations of top 10 companies today is much higher than capitalisation of these companies five years ago.
With size comes complexity and further cross border transactions are throwing up additional risks as companies need to understand new geographies.'' Recent events have shown that various high performing companies have suddenly gone down under, he added.
''This has resulted in various organisations trying to understand how they need to review their companies due to risks emanating from capital market volatility, forex fluctuations, economic policies, changing business models and global slowdown, Mr Rekhy said.
He further added ''Organisations need to stand back and look at risks more holistically, categorise and prioritise risks according to impact and likelihood on a proactive basis and identify business impact. Further they also need to take a long term view of the benefits derived from ERM and implement a framework which is in line with organizational needs and leading practices.'' He said, there should be a seamless integration of risk management procedures into business management and performance.
''ERM is in the very early stages in India,'' says Matteo Tonello, Senior Research Associate at The Conference Board Governance Center, and a co-author of the report.
''As Indian firms expand beyond national borders, they become exposed to more strategic and operational risks, including those from different geopolitical and cultural contexts. Tightening capital markets, the internationalisation of successful Indian companies and the adoption of global initiatives to promote business integrity are forcing many firms to pay attention to recent developments in risk management around the globe.'' Assimilating international standards of risk management is becoming a necessity to remain competitive, he said.
Companies headquartered in Europe or operating in major Asia-Pacific financial markets have advanced significantly in recent years and developed processes at a fast pace, indicating an international consensus on the benefits of risk management integration.
There is also evidence of substantial differences in ERM maturity across industries with financial services, energy and utilities showing more developed ERM processes than other industries.
''The four companies examined closely in this report are more of the exception than the rule in India, where ERM is not widely used as a management tool,'' says Ellen Hexter, Director, Enterprise Risk Management, The Conference Board, and co-author of the report.
''However, experience and research from other parts of the world show that those who are early adopters of ERM are likely to enjoy a competitive advantage,'' he said.
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