In the News: Risk Management: Regional and Sector Risk Trending Down: Report - International Treasurer

Report from French advisory firm Coface shows business risks starting to diminish as global recovery takes hold.

Risks across the 14 business sectors remained concentrated in Western Europe during the fourth quarter, according to a report from French advisory firm Coface. This comes amid indications that economic growth is reducing risk to which companies in North America and emerging Asian countries are exposed to.

Highlighting significant developments in the last quarter in its Panorama study, the provider of credit insurance and receivables-related services noted the risk levels of the North American auto and retail sectors fell to moderate—the least risky level in Coface’s four-point scale—from medium in the fourth quarter compared to the previous quarter.

The same shift occurred in the service sector of emerging countries in Asia, with their sales and profitability rising sharply because of robust household consumption. "In contrast, we are maintaining our ratings for all sectors in Western Europe, because although the overall trend is towards stabilization, this region remains difficult and highly uncertain," the study said.

Overall, emerging Asia had five sectors posing moderate risk and three in the high-risk category, with the remaining six in between and exposing companies to medium risk. North America had just three sectors in moderate risk category but only one, metals, carrying a high-risk assessment, with the rest pegged at medium risk. Western Europe, on the other hand, had no sectors carrying the least risky assessment, with seven assed at medium, five in high risk, and metals and automotive in the fourth, very risky category.

In terms of how multinationals should view the risk assessments from corporate customer and supply-chain perspectives, Khalid Ait Yahia, an economist at Coface, said the study gives a general picture of risk by region and sector, but individual companies can be in good health.

"Relations between a client and a supplier must have deep foundations, based on trust and mutual advantages in terms of quality, efficiency, and so on," Mr. Ait Yahia said. "Some Western European companies are living difficult days, not all. And Western Europe has a lot of champions, innovators, cash generator companies that are doing rather well in these difficult times."

Mr. Ait Yahia added that Europe is now witnessing a "brake/stop" in the degradation of risk, and that it will see a moderate risk reduction in the next six months. North America, including the US and Canada, will see more vigorous economic growth, he said, although sectors such as metals, especially steel and aluminum will continue to suffer due to overcapacity.

Across all three regions the study found the agro-food, retail, textile-clothing and transportation sectors to be of medium risk, with retail achieving moderate risk in the emerging Asia and North American regions. Western Europe’s Electronics sector carried a high risk assessment due a decline in electronic chip production for which, according to the study, the region has introduced a revitalization strategy.

Risk assessments among the mechanicals, metals, auto, construction and energy sectors were more varied. Two of emerging Asia’s high-risk assessments were in mechanicals and metals, but there was less regional risk for the other three sectors. Except for metals, the sectors in North America carried risk assessments of medium or less. Western Europe’s metals and auto sectors were assessed to have very high risk, with construction a notch less risky and energy and mechanicals only moderately risky.

The report notes that the auto sector continues to present very high risk. "This particularly affects the players at the either end of the supply chain: the small component manufacturers as well as the distributors and the repairers," the report says, "However, this gloomy picture is counterbalanced by the relative health of the large component manufacturers who have managed to establish themselves in the high-growth areas."

Among the last four sectors, Coface deemed emerging Asia’s pharmaceuticals, wood-paper and services sectors to be only moderately risky, although its chemical industry was found to be a high risk. Those four sectors in North America were found to be all of medium risky, and in Western Europe they were all high risk except services sector, which was of medium risk.

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