Top concerns among CFOs for 2024, and how they can mitigate against external risks

By Rene Ho, Chief Financial Officer, Taulia

​​Supply chain disruptions, geopolitical turmoil, soaring inflation, and the Covid-19 pandemic have presented global businesses with a multitude of challenges in recent years. As a result of this, CFOs and financial decision makers have had to adopt resilience and agility in order to future proof and protect their operations. And those who are in the strongest position for future uncertainty have effectively implemented digital solutions to optimise and streamline their operations.

The top concerns for CFOs

We are seeing some divergence when it comes to the top concerns for CFOs. As the past four years have been marked by instability, the areas of business which CFOs are most and least worried about are naturally evolving. Taulia’s latest Charting CFO Paths insight report found that economic challenges were finance leaders’ top concern for 2023, with more than two in five (42%) citing inflation as their greatest worry when looking ahead.

This is unsurprising considering that CPI peaked at 11% in the UK in 2022. High costs made it difficult for businesses to stay afloat and continue operating – growth was not on the agenda for the majority of leaders. However, as we get into the swing of 2024, inflation is slowly subsiding. With US inflation cooling to 3.1% and the UK sitting at 5.1%, cost pressures are less pertinent and we are now likely looking at a priority shift towards operational challenges fueled by geopolitical events.

The impact of geopolitical events

Geopolitical uncertainty undermines the stability that businesses need to uphold a dependable supply chain. We have already experienced significant instability this year, motivated by the war in the Middle East and recent Houthi retaliation in the Red Sea has added considerable time to the journeys of shipping vessels. Despite hopes for de-escalation, the reality is that disruption and uncertainty remains – and is unlikely to disappear any time soon.

With Houthi attacks starting late in 2023, the targeting of shipping vessels meant businesses had to change routes if they wanted to move goods through the Suez canal. As a result of this, major container shipping companies opted to avoid the Red Sea and Suez Canal altogether, choosing the longer route around Africa’s Cape of Good Hope. However, this detour extends the journey from Asia to Europe by three to four weeks, substantially elevating costs and straining the supply of goods to businesses.

General elections are another source of disruption for supply chain stability, and with approximately 64 set to go ahead across the world in 2024, businesses are likely to act with caution. Increased uncertainty, political polarisation and potential new trade agreements all play a part in disturbing the balance of business deals and the smooth flow of supply chains.

Building resilient supply chains

Global supply chains involve numerous intermediaries, from producers to processors, wholesalers, packers, buyers, distributors, and retailers. This intricate process resembles a string of dominoes, where a single misstep or delayed payment can disrupt the entire chain – and ongoing tensions in the Red Sea and preemptive caution ahead of general elections have already triggered domino effects for various businesses this year. This is already causing huge disruption to supply chains as businesses are left to endure delays resulting from redirected shipping routes, or absorb higher prices for supplies sourced closer to home.

Onshoring, nearshoring, and friendshoring are various sourcing strategies that businesses are using to mitigate the operational risks stemming from geopolitical events. Opting to source supplies from neighbouring countries or domestically can enhance supply chain stability, albeit at a higher cost. Despite the increased expenses, many companies find the investment worthwhile – according to McKinsey research, over the past 12 months, two-thirds of supply chain leaders have increased their reliance on suppliers located closer to their production sites. That is a significant jump from the number of firms adopting nearshoring strategies in 2022.

In addition to geographical proximity, businesses may explore friendshoring, relocating production to countries with more favourable relations. However, this approach does not protect against disruptions encountered during transportation, such as those currently underway in the Red Sea. Alternatively, some ​​businesses are also looking to manage risk through diversification, spreading source materials over several suppliers.

The role of digitisation

​​If businesses are looking to de-risk, one of the most effective changes they can make is to invest in technology. Innovating and introducing new technology allows organisations to streamline and automate processes, optimising production and supply chain management during testing circumstances. And it can protect them against potential future disruptions too. Swift decision-making is paramount, especially during periods of geopolitical disruption and the ability to strategise and pivot before becoming bogged down in a crisis is crucial. By digitising systems and operations, businesses gain visibility and insights that enhance this agility.

This is evident in Taulia’s Charting CFO Paths report, which showed that nearly half (48%) of CFOs intend to increase investment in IT infrastructure.

Looking ahead

The past four years have well and truly taught us that building a resilient, agile supply chain isn’t just a ‘nice to have’. It’s critical to resilience and future success. Implementing nearshoring strategies and digitising systems are the foundations for building sustainable business practices through geopolitical pain points and unexpected global events.

Looking ahead to the rest of 2024, we are starting to see where the priorities of financial leaders lie and how these are going to compare to 2023. While inflation has taken centre stage for the best part of the last 12 months, there is little doubt that geopolitical turmoil will be the top concern of business leaders this year.