A recent survey showed that less than one in five (18 percent) of organizations in Vietnam are confident that they are ready to face current and future risks, a sign of the urgent need to strengthen business resilience amongst Vietnamese small- and medium-sized enterprises (SMEs).
WTW, a leading global advisory, broking, and solutions company, on Thursday published its Risk Benchmarking Survey, which pooled information from 100 companies in Vietnam.
According to the survey, 44 percent of the organizations only had little-to-no understanding of the current risks they face and their financial impact.
That number increased to 58 percent when they were asked about emerging or new risks that they might face in the next two to five years.
According to WTW, the hindrance to understanding challenges and risk preparedness can be attributed to the lack of relevant empirical data, which 58 percent of the organizations identified as a potential area of weakness in their risk assessment process.
Forty-two percent of the respondents also said they do not have a defined methodology in place to quantify the financial impact of their risks in order to set appropriate risk management measures, while 26 percent said their organizations do not have a formal process to formulate risk appetite or tolerance.
In terms of priorities, 39 percent of the companies cited intense market competition as the top source of risk.
This was followed by macroeconomic uncertainty (37 percent) as a result of ongoing inflationary pressure, as well as communicable diseases (35 percent) as organizations adapt to a post-pandemic business environment.
“What our study has shown is an urgent need to bridge the protection gap in risk impact and its financial implications, and consequently, to enhance risk preparedness across organizations," said Luke Ware, head of corporate risk and broking Asia of WTW.
“This is especially important for a market like Vietnam, one of the most hazard-prone countries in Asia with growing susceptibility to natural catastrophes and climate change impact.
“At the same time, the country is now a global hub for manufacturing and an emerging high-tech center of excellence, attracting significant foreign investments."
Vietnam’s rapid economic growth over the medium-term outlook and the shift in global manufacturing supply chains toward competitive Southeast Asian manufacturing hubs like Vietnam also mean that demand for products and services as well as pricing pressures are the top two areas with the highest risk impact for local businesses.
“With SMEs forming the backbone of the economy, Vietnam is also uniquely placed to take advantage of increasing multinational corporations’ expansions in the country as a result of the ongoing geopolitical shift," said My Thien Nguyen, country leader and head of corporate risk and broking in Vietnam at WTW.
“As manufacturing activities ramp up to meet increasing demand, building resilient supply chains is a business-critical priority.
"Insurance has a key role to play in protecting these SMEs from supply chain losses in order to remain attractive to foreign investments."
Despite the need to enhance risk protection, 32 percent of the organizations surveyed said that their conventional insurance products are inadequate as there are some risks that may not be covered or sufficiently considered.
The organizations are also challenged by pricing, 48 percent considering pricing unpredictability and high cost as major weaknesses amongst their current insurance products.
“While most organizations recognize the importance of insurance, the challenge now will be to develop an equitable approach that allows them to identify and fill the gaps where they are un- or under-insured while at the same time balancing the cost of their coverage," Nguyens remarked.
“Addressing the lack of data to assess the operational risks and their impact will be key to achieving this.
"Companies need to work with their risk advisors using data, technology, and analytics to support proactive risk management and smarter decision-making so that they can be better prepared with sufficient insurance coverage to keep their businesses afloat and resilient to future risks."