Opinion: Four Business Risks to Impact CDOs

A new EIU report showed that geopolitical, financial and operational risks are rising.

Despite the global economy showing strength in 2018, the risks will increasingly shape the business environment. CDOs looking to build their business-IT environments should take heed of the below four dangers.

Risk 1: End of QE can impact spending

The global economy is entering a new phase. The prolonged period of Quantitative Easing (QE) is ending as central banks wind down loose monetary policies. EIU noted that an extended period of decline would create significant risks for the global economy. Households will tighten their financial purse strings, leading to lower consumer spending. Credit for private sector loans will dry up, and banks will be less willing to lend. All these will impact CDOs getting project budgets approved, especially for digital transformation projects that are multi-year based.

Risk 2: Territorial disputes can spill over to data-led programs

As China expands its military to support its territorial and maritime claims, EIU predicted that other countries would "hedge against China, despite its economic heft." This makes the South China Sea a potential flashpoint. However, US President Donald Trump's America First policies are seeing many local countries' tempering their dispute claims against China. This reluctance will further embolden China to assert its claims. "An acceleration of China's island reclamation measures or the declaration of a no-fly zone over the disputed region are distinct possibilities," the EIU report noted. Although military conflicts are unlikely, it can disrupt major supply networks and maritime trade routes. For CDOs, they need to understand that some of these protectionist measures are evolving. They also need to be aware whether some of these measures can spill over to data residency and other privacy regulations, impacting their ability to roll out regional data-driven programs.

Risk 3: Cybersecurity problems will only increase

WannaCry and Petya could be just warning shots. The EIU report noted that there is a risk "that the frequency and severity of attacks will increase to the extent that corporate and government networks could be brought down or manipulated for an extended period." Worse still, the sponsors of these threats may no longer be lone hackers. State-sponsored and criminal network-based attacks will become a reality for all firms, with many looking to blame others (EIU noted North Korea getting the large share of the blame for cyberattacks as an example). And as many governments and firms embrace IoT, there are real reasons to worry about attacks crippling infrastructure and the economy--issues that CDOs will need to address together with CISOs and CIOs. The silver lining is that the increase in attacks is putting cybersecurity on the radar of firms and governments.

Risk 4: China suffers a disorderly and prolonged economic downturn

The EIU report expects China to post robust economic growth in 2018. However, its rising debt burden is an issue. At China's three-day Central Economic Work Conference in late December 2017, policymakers highlighted "softer language on deleveraging" that reduces the risks of an aggressive deleveraging move in 2018. But the risk is still there, and the government needs to deal with it. The problem is that even a hint of deleveraging can have repercussions globally. The most significant threat is commodity prices, which in turn can affect economies (mainly Latin American, Middle Eastern, and Sub-Saharan African) that benefited from China's economic prosperity. It will also impact Western retailers and manufacturers who increasingly depend on China for demand. For CDOs, this will affect their ability to drive multi-year digital transformation projects.

You can find the full report here.