APC 2015 Annual Report Download - page 39

2015 REGISTRATION DOCUMENT SCHNEIDER ELECTRIC 37
OVERVIEW OF THE GROUP’S STRATEGY, MARKETS AND BUSINESSES
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RISK FACTORS
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7. Risk Factors
As described in Chapter3.9 Internal control and risk management,
Schneider Electric regularly analyses the risks and threats it faces,
which has revealed six major risk categories as follows:
•risk factors related to the Group’s business, which also include
the solutions business, supplier risks and competitive threats;
•industrial and environmental risks that also include risks such as
natural catastrophes and political disturbances,etc.;
•information system risks and cyber threats;
•market risks covering currency risks and raw material price
fl uctuation risks;
•legal risks that also cover intellectual property;
•litigation and related risks.
The Group’s main risks and threats are summarized in a chart
ofoverall risks based on their impact and probability.
7.1 Operational r isk
Schneider Electric operates worldwide,
incompetitive and cyclical markets
The worldwide markets for the Group’s products are competitive
in terms of pricing, quality of products, systems and services,
development and introduction time for new offers. SchneiderElectric
faces strong competitors, some of whom are larger than we are
or are developing in certain lower cost countries. The Group is
exposed to fl uctuations in economic growth cycles and to the
respective levels of investments within the different countries in
which we operate. The Group’s widespread geographic coverage
and diversifi ed end markets enable us to ride out downturns on
specifi c markets.
As 43% of the Group’s revenue is generated in emerging countries,
we are exposed to the risks associated with those markets.
The Group’s wide international presence exposes us to many
economic, legal and political risks in the countries in which we
operate. These include risks arising from social unrest (particularly
strikes and walk-outs), political instability, unforeseen regulatory
changes, restrictions on capital transfers and other obstacles to free
trade, and local tax laws. All of these risks may have an adverse
effect on the Group’s operations, results or fi nancial position.
Schneider Electric has implemented procedures designed to
protect it as far as possible from these risks, which are generally
beyond our control, and to manage them as effectively as possible.
These procedures include quarterly business reviews in which
performance and projections are monitored, in terms of activity,
action plans, results to date and forecasts, at all organizational
levels of the Group (see section 3.9 Internal control and risk
management). The Group also has the necessary competencies to
manage these risks, mainly through our central functions (fi nance,
legal, tax and customs).
The growth and success
oftheGroup’sproducts depend on its ability
toconstantly adapt to and leverage new
technologies to deliver high value products
and solutions
The markets in which Schneider Electric operates are experiencing
rapid evolutions due to the introduction of innovative technologies,
such as IoT and Big Data. Customers expect smarter and smarter
products with open interfaces enabling them to be tightly integrated
into more and more complex software based solutions. The
resulting digitization of products, including native Web connectivity
opens numerous new opportunities, but will also accelerate the
convergence of IT and OT technologies, thus making it possible
for new players to enter our markets. The widespread usage of
mobile devices creates new expectations from customers as far as
the general usability of products. Last but not least, the increased
connectivity of products increases the risk of cyber attacks.
To meet these challenges, the Group has increased its investments
in the areas of embedded control (hardware and software), and
cyber-security. A Group-wide initiative aims at developing common
control technologies, leveraging such advances as «controller on
a chip», resulting in smart and open products that are «natively»
secure. More and more, the development of products goes hand
in hand with the development of life-cycle services leveraging Web
connectivity to deliver superior lifetime value to our customers. Such
services not only open new recurring revenue opportunities for
Schneider Electric, but reinforce the Group’s competitive position
versus potential new entrants.
The increased software content of the Group’s solutions has
resulted in specifi c investments in the area of user experience.
The standards and techniques developed for software solutions
apply readily to smart phones and allow development teams to
seamlessly complement products and solutions with state of the
art mobile applications.