Risk Management

Political risk for market dominance

A recent article on the New York Times about the political costs that Google is facing due to its market dominance, and their strategy to reduce those costs, caught my interest:

Google has begun this public-relations offensive because it is in the midst of a treacherous rite of passage for powerful technology companies — regulators are intensely scrutinizing its every move, as they once did with AT&T, I.B.M., Intel and Microsoft. Some analysts say that government opposition, here or in Europe, could pose the biggest threat to Google’s continued success.

Google’s SEC filings make repeated mentions of the high level of competition the company faces in their business. Microsoft and Yahoo are specifically named as the two biggest competitors, and Google notes that Microsoft has more cash and employees, and both companies have longer relationships with advertisers.

I find it interesting that Google is taking the strategy of talking about the “formidable competition” they face as a risk to their business instead of (or in addition to) the risk posed by increased government regulation as a result of their perceived market dominance.

In the section where they talk about government regulation and the risk it poses to their business, they discuss issues like privacy laws, copyright infringement and even net neutrality. But I couldn’t find mention of the risk presented by regulation due to the perception of unfair competition.

Does your business face political risks like Google and other tech companies?


Update on public company auditing in Canada

There’s some interesting Canadian audit industry data in the March 2007 CA Magazine.

In an earlier post I revealed my ignorance when it comes to public company auditing in Canada. I was incredulous that the small, one-office accounting firm could attract large, public company audits, simply because the perception in industry is that only a Big 4 firm has the necessary expertise.

Apparently that is simply not the case, and my eyes have been opened to the true situation. From the short article:

Another interesting finding, not shown in the chart, is that the number of firms auditing companies listed on Canadian exchanges has dropped to 236 in 2006 from 307 in 2005, a decrease of 23%.

236 different firms have public company clients in Canada? That’s quite a lot! And 307 in the prior year?

What is really driving this spread is the market capitalization of the public companies. There’s a chart (referred to in the quote) that shows that the Big 4 overwhelming audit the public companies with substantial market caps.

So the smaller public companies tend to choose the smaller firms. That makes sense.

Either way, lesson learned on my part.