How to turn risks into opportunities for value creation

Family enterprises have long been the bedrock of economies. The 2023 EY and University of St. Gallen Family Business Index highlighted the strength of the top 500 family enterprises globally. Together, they generated US$8.02t in revenue and employ 24.5 million people across 47 jurisdictions. Many of these businesses are more than 50 years old and have weathered market volatility over generations, underscoring the extent to which family enterprises are able to maintain their success — and succession — over time.

Such achievements are not left to chance. Often, a set of shared values and commitment to the family form the foundation of their resilience and adaptability. Importantly, leading family enterprises are focused on creating sustainable value for stakeholders, and to that end, being prepared for risks in all forms to stay resilient for the long term.

Companies today are confronted with an expansive, complex and interconnected risk universe. Amid the usual suspects of financial, cybersecurity, reputation, compliance and competitive threats, companies are also facing increased pressure to deal with risks relating to global geopolitics and supply chains, inflation, the workforce, and talents. These uncertainties can put the brakes on growth as companies struggle to see where the next opportunity or disruption will emerge.

Global geopolitical and supply chain risks

Global geopolitical tensions, which have led to trade disputes and regulatory restrictions as countries seek to safeguard their national interests, are having rippling effects on supply chains.

Disruptions in the supply chain have been proven to impact manufacturing capacities and delivery lead times. Excessive reliance on a single supplier or location can also backfire with expensive downtime. Leading companies are reimagining and redesigning their supply chains, such that these are shorter and more localized. Such pivots challenge the conventional principles upon which many companies have built their operating models.

To strengthen supply chain resilience, companies will need to diversify their sources of supply, accommodate excess capacity and volume redundancy as well as shift toward multiple planning centers and omnichannel interactions with customers. These will no doubt bring new operational requirements and challenges. Further, companies will be compelled to factor sustainability considerations into their supply chain designs in response to a greater focus on climate concerns by consumers, investors and regulators. 

Inflation risk and the end of cheap money

Singapore’s inflation rate has been generally low, averaging 1.8% between 1981 and 2021.1 However, this changed in 2022, when inflation rose to over 4.0% before hitting the peak of 5.5% in January this year.2 While inflationary pressure has eased somewhat, companies must continue to stay vigilant to the risks.

Notably, high inflation ended the era of “cheap money” with interest rates at a level not seen for some time. Therefore, the cost of borrowing has become much more expensive.

For businesses, this means seeking out alternative sources of financing to support their growth plans. Many businesses have compelling ideas but lack the financial resources to turn them into reality. Government support through grants, loans and other fiscal incentives, such as the Enterprise Development Grant, Market Readiness Assistant Grant as well as the Productivity Solutions Grant, can be useful but is likely insufficient to fuel transformative growth.

Private or public fund injections are plausible avenues for fundraising. Most family enterprises may not be comfortable with the idea of going public or accepting private equity offers, given concerns over maintaining legacy, privacy and control. However, there are merits to such equity options, including enhanced professionalization of management, more rigorous governance, expanded options for succession planning through the attraction of external C-level talents, and access to new in-demand capabilities and an expanded network of business relationships.