9. Increasing Competition

Even before the pandemic, the competition among online businesses was already tough. It became even tougher when most people turned to online stores during lockdowns. Even major brands expanded their online sales. The increase in the number of competitors made it more challenging for many businesses to survive.

Etsy Inc. is an American e-commerce company that specializes in handmade and vintage items and craft supplies. In April 2020, when medical face masks were in short supply, the company took advantage of its flexible business model and issued a call to the site’s third-party sellers to immediately start making face masks. As a result, Etsy outdid its competitors and sold $346 million worth of masks in the second quarter. Meanwhile the company directed all that new traffic to its e-commerce app by promoting other homewares, crafts, apparel and beauty supplies. By year’s end, even though only 4 percent of sales came from masks, revenue had surged by 129 percent.

In almost any market, crowds of businesses fight for their shares within their respective niches. But over time, only a small number manage to dominate the industry. A study by McKinsey found that the average life span of companies listed in Standard & Poor’s (S&P) 500 was 61 years in 1958. Today, with the rapid adoption of new technology, fierce competition has shortened their life cycles to less than 18 years. In five years, McKinsey predicts that 75 percent of the companies currently quoted on the S&P 500 will be bought out, merged or bankrupt. The global pandemic has further intensified competition, forcing companies into insolvency.

This tough competitive business environment explains why increased competition has consistently been a top 10 risk since Aon launched its Global Risk Management Survey in 2007. The ranking of increased competition has slipped from number three in 2017 and number five in 2019 because of the heightened perception of other risks, such as business interruption, commodity price and scarcity of materials, and economic slowdown and slow recovery, all of which are connected to the COVID-19 pandemic and exert direct and immediate impact on the bottom line.

As expected, the technology sector — where the lifetime of products continues to shrink, the race to market has intensified and consumer needs are fickle — ranks the risk of increased competition at number four and projects it to be a number three risk three years from now.

Participants in the insurance industry also consider increased competition to be a number three risk because the pandemic-induced global economic downturn intensified competition in the insurance market. Moreover, COVID-19 restrictions have limited customer interaction, affecting normal business operations and forcing both insurers and customers to go digital. InsurTech, an offshoot of the financial technology (fintech) sector, is a rapidly evolving movement aimed at simplifying and improving the efficiency of insurance. Traditional insurance firms are facing increasing competitive pressure from the emergence of InsurTech start-ups. According to data from Boston Consulting Group, global InsurTech funding hit the highest-ever mark of $7.5 billion in 2020. In Asia, countries such as China, India and Singapore have become hot spots for many InsurTech start-ups.

Many variables can impact the competitive position of an organization in certain industry sectors: entry of new competitors, changes in consumer trends, advancements in technology, regulatory changes, economic trends, entry into lower-cost economies and aggressive strategies by competitors. In this rapidly changing marketplace, failure to adequately address these and other market changes could result in irreversible loss of market share.

One of the benefits of the pandemic is that companies have accelerated the digitalization of their customer and supply chain interactions and of their internal operations. Alan Frohman at Harvard Business Review discussed the research-and-development (RD) investments of nine major international companies to see how those that use technology successfully as part of their competitive strategies differ from those that do not use it successfully. His study found that investing in technology can be a competitive weapon. Top management with a technical orientation, selection criteria that support and maintain advanced technology, and systems and structures in place vastly improve a company’s competitiveness.

Competition is central to the operation of markets and fosters innovation, productivity and growth. At the same time, increasing competition can also eat away market share and end a business. During a crisis, while larger business organizations may be able to fend off higher amounts of competition than smaller ones with limited resources, all organizations, regardless of size, should embrace competition and treat it as a priority risk.

While competition risk is not an event that can be insured directly, comprehensive and informed enterprise risk management can bolster resilience and improve competitiveness against peers.

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Top 10 Risks

10. Failure to Innovate/Meet Customer Needs

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