Price pressures and cost-cutting biggest challenges for SMEs in 2013: Ernst and Young report

Pricing pressure and cost-cutting are the biggest business risks in 2013, according to a survey of Australian businesses released by accounting giant Ernst & Young, which shows entrepreneurs no longer expect market conditions to get “back to normal”.

The report reveals Australian companies ranked pricing pressure as their biggest risk, alongside cost-cutting and pressure on margins for the year ahead. Experts say the key to growth this year will be conquering those challenges.

“Businesses have got to ensure their risk management practices are sharply focused in on mitigating the risks which truly matter,” Ernst & Young Asia-Pacific risk leader Rob Perry told SmartCompany.

“A lot of money has been spent in this area without actually changing the risk factor of an organisation. The spending has got to be in alignment with the risks which matter.”

While there was some doom and gloom in the report, the top five economic opportunities were innovation, emerging market demand and growth, productivity, new marketing channels and improving execution of strategy.

The Business Pulse report surveyed 641 companies in 21 countries.

Perry told SmartCompany companies have stopped thinking about the market “getting back to normal”.

“Early into the global financial crisis it was a matter of when we were getting back to normal, but that normal hasn’t quite arrived and so there is a degree of uncertainty and we still see significant shocks impacting the stock market.

“There is a concept of the ‘new normal’, the Dow Jones is now back to where it was pre-GFC, but markets are now anticipating new normals,” he says.

Perry says for the past five years businesses have been most concerned about the same risks, but this year have placed a greater emphasis on pricing pressures and cost control because of the economic uncertainty.

“The issue of productivity in the Australian landscape at the moment is a hot topic. Businesses need to consider what are their productivity goals and objectives and are they being met,” he says.

Specific to Australia, Perry says regulatory burden was also ranked as one of the biggest risks to businesses.

“The regulatory landscape continues to be a challenge. The mining sector in particular ranked central government as one of the biggest risks. In an election year there is also a lot of uncertainty,” he says.

Perry says new marketing channels such as social media are ranked as one of the biggest opportunities for growth and Australian businesses are keeping up with others globally in this respect, but they still have a lot to learn.

“Social media and the new marketing channels are very much on the landscape of Australian companies at the moment, but from the risk management perspective I think the understanding of the implications are less mature at this stage,” he says.

Perry says businesses are failing to arm themselves against the security threats associated with the new technology.

“There is both the upside of social media and the risk management side to it. Businesses need to be aware there are no secrets anymore and for organisations which think you can hush something up, this belief is naive,” he says.