Australia well placed for post-pandemic business recovery

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Australia has been found to possess a strong foundation for a robust post-pandemic business recovery – featuring among the top-ranked countries in the 2020 FM Global Resilience Index.

The annual index, published by FM Global, one of the world’s largest commercial property insurers, is the only definitive global ranking of nearly 130 countries and territories by the resilience of their business environments. It provides companies with objective information about countries’ economic, risk quality and supply chain resilience – factors that can affect businesses’ ability to rebound from COVID-19.

At a time when the world has been shocked by a pandemic and resilience has never been more critical, Australia ranked 17th overall in this year’s index. Countries’ rankings are derived from 12 measures that address business concerns around such vulnerabilities as natural hazards, cyber threats, political and economic risk. The complete data is available here.

Strong supply chain and fire risk quality

Australia was recognised for its strength in a number of drivers related to supply chain resilience including control of corruption (ranked 14), supply chain visibility (ranked 22) and quality of infrastructure (ranked 31). These highlight the quality of the country’s transport, telephony and energy infrastructure, as well as the country’s ability to track and trace consignments across its supply chain. With recent bush fires still top of mind for many people, Australia ranked highly for its fire risk quality (ranked 7) and natural hazard risk quality (ranked 15), acknowledging, in part, the country’s quality and enforcement of building codes with respect to natural hazard-resistant design. This driver of resilience is critically important for businesses with operations located in regions affected by natural hazards, such as flood and bushfires.

Lynette Schultheis, Operations Manager, FM Global Australia says, “The pandemic has brought many businesses to a standstill and caused significant disruption and uncertainty to the future of global economies. Australia has not been immune. However, it is encouraging to see that steps taken to date to mitigate our risk across a number of key areas have placed the countries’ businesses on a strong footing, as they look to recover from this unprecedented economic and operational shock.”

Managing supply chain disruption

Where there may be cause for concern is for the many businesses who have extended their supply chains into neighbouring countries across Asia to reduce costs and increase competitiveness. In addition to supply chain disruption and operational risk that many local businesses have been subject to as a result of the pandemic, a number of major manufacturing hubs in the Asia Pacific region ranked poorly for a number of drivers of supply chain resilience, as illustrated in the table below:

 

With regard to supply chain resilience specifically, Australia’s largest trading partner, China (which is subdivided into three ranked regions because its geographical spread includes disparate natural hazards such as wind, flood and earthquake) significantly improved its corporate governance from last year’s ranking (from 98 to 74), indicating greater scrutiny of auditing and accounting standards, conflict of interest regulation and shareholder governance. However, the country’s quality of infrastructure dropped slightly (from 31 to 38), indicating possible vulnerabilities in this integral aspect of global supply chain resilience. In regard to China’s natural hazards exposure, China region 2 is the most exposed (ranked 75), followed by China region 1 (ranked 69) and China region 3 (ranked 59)[1].

“The globalisation of many industries such as manufacturing has created a level of complexity which can leave business leaders unprepared for significant disruption in supply chains, and for the potential financial, legal and reputational risks that result. This pandemic should reinforce the importance of striking a better balance between cost-effectiveness and a diversified supply chain. This starts with taking into consideration all the potential risk factors involved with a given business partner and country-level resilience is a big part of that,” Schultheis says.

Conventional yet critical

The FM Global Resilience Index stands as a reminder that more conventional business risks, including cyberattacks, continue to threaten operations and overall value, and should not be overlooked amid the response to the pandemic. Australia’s overall resilience ranking was held back by its inherent cyber risk (ranked 48), oil intensity (ranked 93) and corporate governance (ranked 41). This reinforces the importance of business leaders assessing their level of exposure to other risk factors and developing clear steps to mitigate potential disruption.

Business leaders must also remain alert to the natural hazard exposure (the percentage of a country’s area devoted to economic activities that is exposed to at least one natural hazard) of its regional trading partners which has the potential to cause significant disruption to extended supply chains. In regards to natural hazard exposure Singapore ranked 111, Japan ranked 101, Taiwan ranked 100, Hong Kong ranked 95 and South Korea ranked 98.

“This pandemic and FM Global’s experience highlight the far-reaching, long-lasting effects on business value and performance that a lack of resilience can bring. It’s clear that businesses must look more broadly at their continuity plans and use data-driven tools to develop more robust strategies.

“The FM Global Resilience Index is one such tool; designed to provide business leaders, including chief financial officers, with this kind of powerful intelligence to support their decisions surrounding operational resilience and effective risk management. The Index can provide critical insights for businesses making strategic decisions as they site facilities, extend supply chains and cultivate new markets,” Schultheis adds.

Global leaders and laggards

Norway continues to occupy the top spot in the 2020 Resilience Index due to its strong economic productivity, a stable political environment, low corruption, high natural hazard risk quality and robust corporate governance. While the country ranks first overall, it ranked below average for inherent cyber risk (ranked 83), highlighting that no country is entirely resilient.

The bottom 10 countries when ranked for overall resilience (in descending order) are Nicaragua, Nepal, Mali, Mozambique, Iran, Lebanon, Chad, Ethiopia, Venezuela and Haiti.

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[1] Further details about which areas in China fall into which grouping are provided in the methodology.

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