Is competition really a risk?

Regulations and accounting standards require companies to declare risks as part of their annual reports but many of them are not risks at all, they are business as usual.

Take for instance competition. All companies without exception have competitors and all companies consider the competition as a major risk.  From the risk statements of the eight pharmaceutical companies I analysed, they all listed the competition as a risk. [1] Their competition could harm them, they say:

‘We continue to face increasingly fierce local competition.’

‘We expect competitive pressure to intensify.’

‘Competitive pressure has increased in many market segments.’

Now everybody knows that the competition is fierce, intense and increasing. These bland statements do not help the reader understand what is really going on. Yet they paint an alarming picture: the competition ‘… could adversely affect our business, results of operations or financial results.’  This is still vague and general.

And what are they going to do to combat this risk? After all, if it is so important that it needs to be included in the annual report, they cannot sit around and do nothing. They need to take action to combat this significant risk. It is here that the companies differ.

Some do stress testing (Glaxo) and suddenly the risk is reduced to a mere possible increase in funding and anyway given the liquidity available they have nothing to worry about. Others do not make stress tests but announce they might have to make more investments, so again nothing to worry about. This to me means the risk is minimal and should not be part of the risk analysis! 

Some perform supplementary ‘management actions’ (Astra Zenica) to combat the risks but with meaningless actions such as diversified portfolio or focus on key products. Some do nothing (Sanofi, Abbot) they state the risks and leave the reader to wonder whether they are real or imminent.

If companies stated they were losing market share in a particular region or segment that could be counted as a real risk for the future, but not these bland yet alarming competitive statements.

[1] I analysed the risk statements from the 2021 and 2022 annual reports of eight pharmaceutical companies, four based in USA – Abbott Laboratories, Abbvie Inc, Bristol-Myers Squibb Company, Johnson and Johnson, and four based in the Europe – AstraZenica, GlaxoSmithKline, Sanofi, Novartis.