Analysis: More than ever, businesses must think

By Paritosh Bansal

DAVOS, Switzerland (Reuters) - A tumultuous 12 months that saw revolutions in the Middle East, a worsening debt crisis in Europe and a tsunami in Japan has set the tone for corporate activity in 2012.

Caution, flexibility, nimbleness and deep knowledge of host countries are more important than ever, executives and their advisers said at the World Economic Forum's annual meeting.

Fear of a major geopolitical disruption over the next 12 months has risen to 54 percent, up from 36 percent last quarter, a WEF poll showed at the start of this week's meeting.

"You have to more than at any time in recent memory think in terms of 'what ifs,'" said Vasant Prabhu, chief financial officer of Starwood Hotels & Resorts Worldwide Inc <HOT.N>.

"This is a world in which you have to think in terms of scenarios and alternate outcomes and what you would do."

Companies are closely looking at their counterparties - their vendors, suppliers and the banks that manage their cash to assess what would happen if they run into problems.

They are worrying about their currency exposure, with one U.S. company chairman in Davos privately saying he had started converting all of his company's cash in euros into dollars since the euro zone debt crisis suddenly deepened last year.

Other risk-averse moves include companies adjusting their supply chains to build flexibility into their business should a natural disaster cause a repeat of the huge disruption which followed the Japanese earthquake and tsunami last year.

And as they enter new markets and face more uncertainty in mature ones, they are putting more effort into understanding local politics and business practices. Some are using former spies to gather intelligence on trade partners.

Behind all this is a growing sense that increased uncertainty is the new reality of doing business. Financial considerations can no longer be the sole focus, advisers and executives said in interviews before and during the WEF in Davos.

"I think fundamentally there is an acknowledgement that this volatility that we are seeing is going to be here for the foreseeable future," PricewaterhouseCoopers Chairman Dennis Nally said.

"You can't predict the solution here in Europe. You can't predict what may happen in the Middle East. You can't predict what could happen in terms of the geopolitical issues in Asia, or certainly what's coming out of Washington," Nally said.

Companies feel an imperative to be better prepared.