Global Business and Spending Monitor 2011

Transcription

1 EXECUTIVE INSIGHTS Global Business and Spending Monitor 2011 More than 650 leading CFOs share their views on the economic outlook. All Respondents

2 About this report In March 2011, CFO Research Services launched the fourth annual Global Business and Spending Monitor, which documents the priorities of senior executives around the world as they adapt to shifts in the global economy. The research programme explores how these executives plan to help position their companies for growth as the world economy improves, as well as the spending and investment decisions their companies are making to support their growth plans. As part of the programme, CFO Research Services distributed a survey among senior financial executives at companies in Asia, Australia, Europe, North America and South America with annual revenues of $500 million and above. Responses from more than 650 finance executives form the basis for the findings in this report. Disclaimer: Please note that due to rounding, there are minor discrepancies between the chart data and the text, and there might be instances where percentages do not precisely total 100%. Page 2

3 Key findings Page 3 While most finance executives see at least modest top-line growth for their businesses in the next 12 months, a larger proportion of those in more dynamic countries are optimistic about near-term growth prospects for their companies. In vibrant economies like India, Argentina, Singapore and Mexico, more than 85% of executives say they foresee at least modest company growth in the next 12 months. The majority of respondents from Hong Kong anticipate that growth will surge in the third quarter of 2011, with half of the respondents from Australia having the same expectation. Respondents in Japan and the United States are far less optimistic about the likelihood and timing of economic growth. Europe has the most negative outlook, with just under 40% expecting either no change in the economy (24%) or a contraction (15%) in the next 12 months. Whether focused on boosting top-line growth or improving bottom-line results, executives are concerned about risks to performance. Respondents are evenly divided about whether they will pursue top-line expansion or bottomline profitability strategies in the next 12 months. US companies are far more inclined to pursue profitability growth (62%), while finance executives in rapidly growing emerging markets are more likely to be concerned about the risks associated with expanding too quickly. Respondents across the globe agree that cash is a valuable buffer. A clear majority of all companies (62%) are pursuing a deliberate cash preservation strategy, with more than half retaining cash so they can seize investment opportunities quickly. Respondents from fastgrowing countries in Asia are more reluctant to put the brakes on indirect spending, while India and Hong Kong have high percentages of executives who plan to increase their spend on advertising, marketing and PR in the year ahead. Global hiring isn t ready to speed up, but there are pockets of growth where worker productivity is approaching maximum levels. More than half of the respondents from every region (except Latin America) saw some opportunity to improve labour/staff productivity. Countries where a relatively high proportion of executives saw the potential for some productivity gains (including Japan and the US) were also those where the most significant proportion of respondents expressed no clear expectation about the timing for economic acceleration. A substantial proportion of executives in Hong Kong report that they expect to spend cash aggressively to expand operational activities and headcount in the next 12 months. More than half of respondents based in India (53%) also expect their spending on headcount to increase in the next 12 months. Companies overall are becoming more conservative in their spending and investment practices. However, companies in Asia/Australia and Latin America appear to be willing to invest more to grow. The majority of survey respondents say that their companies have emerged from the recession with a different decision-making style. They are applying more rigour to prospective deals and investments, and acting more conservatively in taking operating and financial risks. In India, almost half of the respondents expect to invest substantially more across a range of business activities, suggesting that they are intent on achieving growth. They also plan to invest more in mergers and acquisitions and are increasing their budgets for everything from business and professional services, to production inputs, to attracting and retaining talent. Travel spending has stabilised and is now in growth mode for specific purposes. Sixty-three percent of survey respondents report that spending on travel will either stay the same or increase this year compared to last. Of those, 40% are increasing spending anywhere from 5% to more than 15%. Travel spending is more likely to increase in the emerging markets of Asia/Australia than in the more mature markets of Europe and North America. Travel to attend meetings with new, potential or existing clients is likely to benefit the most from the increased investment. Business trips linked to generating revenue and managing operations are clearly a priority, with 77% of respondents reporting that travel for meetings with suppliers and vendors will either increase or stay the same.

4 Introduction In March 2011, CFO Research Services launched the fourth annual Global Business and Spending Monitor to senior finance executives at large companies (turnover $500 million or greater) around the globe. More than 650 completed surveys form the basis of the results. The country level composition of responses is as follows: Country Number of responses Percentage of total Argentina 28 4% Australia 30 5% Canada 36 5% Europe (Excl. Germany, UK) 77 12% Germany 36 5% Hong Kong 38 6% India 39 6% Japan 35 5% Mexico 20 3% Singapore 37 6% United Kingdom 46 7% United States % Other 31 5% Total % Page 4

5 1. The job titles of the executives surveyed are as follows: What is your title? Director of finance 22% Controller 20% Chief financial o cer 20% VP of finance 14% Treasurer 9% EVP or SVP of finance 9% CEO, president, or managing director 1% Other 5% 0% 10% 20% Page 5

6 2. The revenue breakdown in the most recent fiscal year of the firms surveyed appears below: What were your firm s worldwide revenues in US Dollars, in its most recent fiscal year? $500M-$1B 32% $1B-$5B 28% $5B-$10B 16% $10B-$20B 11% $20B+ 14% 0% 10% 20% 30% Page 6

7 3. Respondents are generally positive about their countries economic prospects over the next 12 months: Far more respondents anticipate economic expansion rather than contraction over the next year. Only 12%, however, expect this expansion to be substantial. In your opinion, what are the economic prospects in the next 12 months for the country in which your position is based? Substantial economic expansion 12% Modest economic expansion 63% No change in economic prospects 17% Modest economic contraction 7% Substantial economic contraction 2% 0% 10% 20% 30% 40% 50% 60% 70% Page 7

8 4. The executives surveyed are relatively optimistic about their companies respective prospects: Seventy-two percent of respondents expect at least modest top-line growth for their companies in the next 12 months. In your best estimation, what are the growth prospects in the next 12 months for your company? Substantial top-line growth 17% Modest top-line growth 55% Little or no top-line growth 21% Modest top-line contraction 5% Substantial top-line contraction 1% 0% 10% 20% 30% 40% 50% 60% Page 8

9 5. Most respondents expect economic growth to accelerate in their countries before the end of 2011: Seventy-one percent of respondents expect economic growth to accelerate before the end of There is evidence of uncertainty, however, with 14% of respondents not having clear expectations about the acceleration of economic growth. When do you expect that economic growth will accelerate in the country where your position is based? Economic growth is likely to accelerate in the second quarter of % Economic growth is likely to accelerate in the third quarter of % Economic growth is likely to accelerate in the fourth quarter of % Economic growth is likely to accelerate after the fourth quarter of % I don t have clear expectations about the acceleration of economic growth 14% 0% 10% 20% 30% 40% Page 9

10 6. Survey results are orientated towards sustained and profitable growth: The even split between a focus on profitability and top-line growth suggests an orientation towards sustained, profitable growth in the next 12 months, with close attention to both the top and bottom lines. In your opinion, is your company likely to focus more on top-line growth or on profitability in the next 12 months? My company will focus more on profitability than on top-line growth in the next 12 months 51% My company will focus more on top-line growth than on profitability in the next 12 months 49% 0% 10% 20% 30% 40% 50% 60% Page 10

11 7. Finance executives are split between the risk of expanding too rapidly or too slowly, depending on whether they are in an emerging market or not: While the majority of respondents (52%) see expanding too quickly as the greater risk, almost as many (48%) view expanding too slowly in the same way. Perceptions are generally linked to local economic conditions, with concerns about too-rapid expansion in high growth markets mirroring concerns about too-slow expansion in low growth markets. As economic conditions improve, my company s business performance is placed at greater risk by: Expanding business operations too quickly 52% Expanding business operations too slowly 48% 0% 10% 20% 30% 40% 50% 60% Page 11

12 8. Executives in emerging markets are more likely to perceive labour scarcity as a risk to their company s business performance than their peers in more mature, lower growth markets: Respondents are split regarding the risk of hiring too fast or too slowly, largely depending on local labour conditions and the phase of their markets. As economic conditions improve, my company s business performance is placed at greater risk by: Hiring new sta too slowly 51% Hiring new sta too quickly 49% 0% 10% 20% 30% 40% 50% 60% Page 12

13 9. Finance executives are split regarding the perceived risk to company performance due to either relaxing or tightening indirect spending polices: Despite the overall even split, there are marked variations at regional and country levels, reflecting local economic conditions and growth prospects. As economic conditions improve, my company s business performance is placed at greater risk by: Adopting more relaxed policies for indirect spending 51% Adopting stricter policies for indirect spending 49% 0% 10% 20% 30% 40% 50% 60% Page 13

14 10. The issues regarded as substantial risks to meeting performance objectives are seen to be new regulation, competition from emerging markets and labour scarcity: The results suggest that companies efforts to de-leverage their balance sheets and reduce their reliance on third party funding have been successful. Increased regulatory scrutiny, however, is becoming a substantial burden. As economic conditions improve, which of the following items will pose the greatest risk to your company s ability to meet its performance objectives? New regulatory requirements 25% 51% 24% Competition from companies in emerging markets 21% 52% 27% Access to well-qualified employees 20% 56% 24% Changing currency exchange rates 16% 52% 32% Tax policy and enforcement 15% 57% 27% Access to financing 9% 40% 51% Substantial risk to business performance Little or no risk to business performance 0% 20% 40% 60% 80% 100% Moderate risk to business performance Page 14

15 11. A solid majority of respondents see more room to improve productivity: A substantial majority of respondents (82%) see at least some opportunity to extract greater productivity from their workforce. Conversely, only 2% feel their companies have reached maximum productivity levels. In your view, how close is your company to reaching its maximum level of labour/staff productivity? My company has substantial opportunity to improve labour/sta productivity 25% My company has some opportunity to improve labour/sta productivity 57% My company is near its maximum level of labour/sta productivity 16% My company has reached its maximum level of labour/sta productivity 2% 0% 10% 20% 30% 40% 50% 60% Page 15

16 12. Strong cash flow has prevailed over the past four quarters: Eighty-four percent of all respondents report that cash flow from operations has been somewhat strong or very strong over the past four quarters. Which of the following statements best describes your company s cash flow from operations in the past four quarters? In the past four quarters, my company s cash flow from operations has been Very strong 28% Somewhat strong 56% Somewhat weak 14% Very weak 3% 0% 10% 20% 30% 40% 50% 60% Page 16

17 13. Cash preservation is a dominant strategy at companies around the world: Sixty-two percent of all respondents confirm that their companies are deliberately preserving cash, compared to only 38% who say they are not. Is your company pursuing a deliberate cash preservation strategy? Yes 62% No 38% 0% 10% 20% 30% 40% 50% 60% 70% Page 17

18 14. Cash preservation is providing a hedge against inflation as well as a source of capital and funding: Respondents from around the world are far more likely to agree than disagree with the statements: My company seeks to retain cash in order to seize investment opportunities quickly in the future. My company seeks to retain cash as a hedge against economic volatility. To what extent do you agree or disagree with these statements about your company s use of cash? My company seeks to retain cash in order to seize investment opportunities quickly in the future 16% 36% 31% 12% 5% My company seeks to decrease its reliance on banks and other third-party sources of capital 12% 32% 30% 20% 6% My company seeks to retain cash as a hedge against economic volatility 11% 31% 31% 19% 8% My company currently has few internal investment opportunities that warrant funding 6% 24% 32% 24% 14% 0% 20% 40% 60% 80% 100% Agree strongly Agree somewhat Neutral Disagree somewhat Disagree strongly Page 18

19 15. The majority of respondents are prepared to be relatively aggressive in the use of their cash in the next 12 months: Survey respondents say they are least likely to return cash to shareholders very aggressively. This suggests companies believe they can generate value for shareholders through strengthening their balance sheets or directing cash to growth efforts. This in turn suggests some degree of confidence in their companies overall prospects. How aggressively will your company use its cash for the following purposes in the next twelve months? Acquisitions 19% 50% 31% Expand operating activities and headcount 14% 54% 32% Increase capital spending 14% 51% 35% Pay down debt balances 14% 49% 38% Increase R&D spending 11% 45% 44% Return cash to shareholders (through dividends or share purchases) 10% 41% 50% 0% 20% 40% 60% 80% 100% Very aggressively Somewhat aggressively Not aggressively Page 19

20 16. Reducing leverage and diversifying capital sources are among the most common changes in borrowing behaviour post-recession: Key changes are apparent in borrowing behaviour post-recession: Forty-two percent of respondents say their companies are looking to reduce their debt exposure Thirty-seven percent are looking to diversify capital sources. To what extent do you agree or disagree with these statements about how the recession has changed your company s approach to borrowing? As a result of the recession, my company seeks to decrease its debt exposure 10% 33% 37% 15% 6% My company is diversifying its sources of capital or seeking alternative sources of capital as a result of the recession 8% 29% 37% 19% 7% My company now works with more banks as a hedge against the risk of bank failure or distress 7% 25% 39% 22% 8% Bank consolidation and limited access to conventional forms of borrowing during the recession will have long-term e ects on my company 7% 20% 39% 23% 11% My company plans to decrease its number of banking relationships 6% 20% 42% 24% 8% 0% 20% 40% 60% 80% 100% Agree strongly Agree somewhat Neutral Disagree somewhat Disagree strongly Page 20

21 17. Respondents around the world appear reluctant to incur debt for any purposes: Large numbers of respondents (42% or more) don t expect to aggressively incur debt across a range of growth and balance sheet strengthening purposes. How aggressively do you think your company will incur debt for the following purposes in the next 12 months? Strengthen cash position 15% 43% 42% Refinance debt 14% 43% 43% Increase capital spending 13% 42% 45% Expand operating activities and headcount 11% 44% 45% Increase R&D spending 11% 36% 53% Finance acquisitions 9% 48% 43% 0% 20% 40% 60% 80% 100% Very aggressively Somewhat aggressively Not aggressively Page 21

22 18. Companies around the world are applying far more rigour to investment and spending decisions as a result of the recession: Areas of increased rigour include: Heightened due diligence regarding acquisitions More scrutiny of the business cases for spending Analysis of capital investment decisions The adoption of a more conservative risk profile Higher investment hurdles. As a result of the recession, has your company changed the following dimensions of its decision-making? My company s due diligence of prospective acquisitions and partnerships is more rigorous My company requires a more rigorous business case for spending on technology, headcount, and operating activities My company has a more conservative financial risk profile 76% 71% 70% 24% 29% 30% My company analyses capital investment decisions more fully 70% 30% My company has a more conservative operating risk profile 68% 32% My company s investment hurdles are higher 60% 40% 0% 20% 40% 60% 80% 100% Yes No Page 22

23 19. Finance executives are concerned about their companies ability to maintain the management discipline they achieved during the recession: Survey respondents around the world: Are most likely to say they are very concerned about their ability to maintain profitability discipline Are least likely to say they are very concerned about their ability to maintain cash and working capital discipline. To what extent is your finance team concerned about your company s ability to maintain the discipline and improvements it achieved during the recession in each of the following areas? Profitability targets 31% 50% 19% Growth plans 27% 51% 22% Administrative discipline (enforcing policies, processes, and controls) 24% 53% 23% Employee productivity 23% 54% 24% ROI requirements 19% 54% 27% Cash and working capital management discipline 18% 53% 29% 0% 20% 40% 60% 80% 100% Very concerned Somewhat concerned Not very concerned Page 23

24 20. Investment is most likely to be directed to support expanded market access and efficiency improvement: The results suggest that companies are adopting a somewhat more conservative posture toward growth in the next year, compared to last year s survey. While investments to expand market access are targeted for more investment (54%), respondents are comparatively less likely to say they plan to invest in new product/service development than in the 2010 survey. As compared to the last 12 months, does your company plan to invest more, the same amount, or less in each of the following areas in the next 12 months? Expand market access (e.g. sales and marketing activities) 13% 41% 36% 9% 2% Improve production process e ciency (streamline manufacturing, retire equipment, upgrade technology, etc.) 13% 39% 37% 9% 2% Improve administrative process e ciency (streamline/automate finance, accounts payable, procurement and other processes) 12% 40% 39% 7% 2% Mergers and acquisitions 11% 32% 41% 11% 6% New product/service development 10% 34% 40% 11% 4% New production capacity 9% 34% 41% 12% 4% 0% 20% 40% 60% 80% 100% Invest substantially more Invest somewhat more No change in investment Invest somewhat less Invest substantially less Page 24

25 21. Company spending is showing a slight recovery compared to last year s survey: Fewer companies are planning to reduce spend across the categories than last year. In categories where companies plan to spend more, items closely tied to boosting productivity and increasing capacity will benefit. Over the next 12 months, does your company plan to spend more, the same amount, or less than it did in the last 12 months in each of the following categories to support its strategic objectives? Labour/headcount 32% 51% 17% Enterprise-level IT systems 29% 54% 17% Advertising, marketing, and PR 28% 54% 18% Computer hardware (PCs, servers, mobile technology) 27% 57% 16% Production inputs (raw materials, intermediate goods) 26% 58% 16% Business and professional services 21% 58% 21% Depreciable assets (including real estate, facilities, and PP&E) 21% 57% 22% Transportation/logistics services 19% 60% 22% Indirect line items (such as travel and entertainment) 15% 53% 32% 0% 20% 40% 60% 80% 100% Spend more Spend the same amount Spend less Page 25

26 22. Spending on business travel will remain relatively stable over the next year: While overall expectations are for stability in business travel, Forty-one percent of all respondents anticipate that travel spending will increase Nearly as many (38%) expect travel spending to decrease Twenty-three percent expect their companies travel spending to remain the same. Companies that anticipate more robust prospects are relaxing controls, while companies that anticipate more challenging prospects are maintaining them. Do you think your company will spend more, the same amount, or less on business travel this year compared to last year? My company s spending on business travel this year, as compared to last, will most likely Increase by more than 15% 4% Increase by 10% to 15% 6% Increase by 5% to 10% 14% Increase by up to 5% 17% Stay the same 23% Decrease by up to 5% 12% Decrease by 5% to 10% 14% Decrease by 10% to 15% 8% Decrease by more than 15% 4% 0% 10% 20% Page 26

27 23. Travel spending that is closely tied to sales and to maintaining customer relationships is expected to increase this year: Eighty-five percent of global respondents expect spending on travel to meet with new or potential clients to either increase (34%) or stay the same (51%). Eighty-four percent expect travel to meet with current clients to either increase (23%) or stay the same (61%). Similarly, 77% expect travel for meetings with suppliers or vendors to either increase (16%) or stay the same (61%). In your opinion, how will spending levels this year change for these categories of business travel, as compared to last year? Travel for meetings with new or potential clients 34% 51% 15% International travel 28% 43% 29% Travel for meetings with current clients 23% 61% 16% Domestic travel 20% 54% 26% Travel for industry conferences, management retreats, professional development, etc. 19% 49% 32% Travel for meetings with suppliers and vendors 16% 61% 23% Travel for sta meetings or for other internal business 14% 53% 33% 0% 20% 40% 60% 80% 100% Spending will increase Spending will stay the same Spending will decrease Page 27

28 24. Headcount is expected to increase in the next year, particularly in core sales and operations/production functions: Nearly half of all respondents (48%) say they expect to increase headcount in their sales functions, far outnumbering those who say they plan a decrease (7%). Similarly, 37% of respondents say they plan to increase headcount in operations and production, versus 13% who say they plan to decrease headcount. In your opinion, is your company likely to increase, leave unchanged, or decrease its total headcount devoted to each of the following activities in the next twelve months? Sales 48% 40% 7% 4% Operations and production 37% 45% 13% 5% Information technology 34% 49% 13% 5% Marketing 33% 52% 10% 5% Research and product development 33% 52% 9% 6% Customer service 32% 55% 9% 5% Finance and accounting 26% 55% 15% 4% Human resources and other administration 23% 57% 15% 5% 0% 20% 40% 60% 80% 100% Increase headcount No change in headcount Decrease headcount Don t know Page 28

29 25. Expectations regarding the use of alternatives to full-time employment are largely stable: The vast majority of respondents (79% and more) say they plan either no change, or an increase in their company s use of alternative employment arrangements over the next year. To what extent is your company likely to increase or decrease its use of the following alternatives to hiring full-time permanent employees in the next twelve months? Independent consultants or contractors 24% 55% 21% Temporary sta ng through employment agencies 23% 59% 19% Part-time employees 19% 65% 16% Job-sharing between part-time employees 17% 71% 12% 0% 20% 40% 60% 80% 100% Increase use No change in use Decrease use Page 29

30 26. The survey suggests that spending to attract and retain staff is likely to increase over the next year: Respondents around the world most frequently say their companies plan to increase spending on salaries and wages and on training and development. Will your company spend more, less, or the same amount in the following categories to attract and retain talent over the next 12 months than it did in the previous 12 months? Salaries and wages 4% 42% 40% 12% 2% Training and development 5% 31% 49% 12% 3% Bonuses 4% 28% 48% 16% 4% Health benefits 5% 25% 53% 14% 4% More flexible work arrangements 4% 25% 59% 10% 4% Retirement benefits (e.g., 401k match, pensions) 3% 19% 63% 12% 4% Vacation 3% 12% 71% 10% 5% 0% 20% 40% 60% 80% 100% Spend much more Spend somewhat more No change in spending Spend somewhat less Spend much less Page 30

31 27. The satisfaction and experience of customers is being measured far more closely post the downturn: The range of expectations regarding a closer measurement of customer experience across various dimensions is between 33% and 39%, while the majority of respondents expect no change. Has your company changed how it measures the following dimensions of its customers experience as a result of the economic downturn? Customers satisfaction with my company s products/services 39% 56% 6% Customer retention and loyalty 39% 55% 6% The e ectiveness of my company s spending on customer service activities 34% 61% 6% My company s customer service performance 33% 58% 9% 0% 20% 40% 60% 80% 100% Measured more closely No change in measurement Measured less closely Page 31

32 28. Many companies will be increasing their investment in customer service and customers experience areas: Close to half (46%) of respondents expect their companies to invest more in customer service and customer experience in the next year, while 51% expect no change. Only 3% anticipate reduced spending in these areas. Is your company planning to invest more in the customer service or customer experience areas of your business in the next 12 months than it did in the last 12 months? Yes, investing more 46% No change in investment 51% No, investing less 3% 0% 10% 20% 30% 40% 50% 60% Page 32

33 29. Wide ranging supply-chain improvements have been pursued at the majority of companies surveyed: A majority of all respondents 51% or more have pursued the full range of supply-chain improvements, including establishing closer relationships with suppliers and implementing systems to improve visibility into the supply base. Two-thirds of all respondents say they have also extracted price, service, and/or term concessions from suppliers. During the economic downturn, did your company pursue the following initiatives with your base of suppliers? Achieve concessions from suppliers on prices, discounts, performance, or payment terms 66% 25% 9% Evaluate current or prospective suppliers more thoroughly 66% 24% 9% Establish closer relationships with your most strategic suppliers 63% 28% 9% Consolidate base of suppliers and vendors 60% 30% 10% Link information systems in an e ort to share data on orders, shipments, and payments more e ectively 51% 38% 11% Yes No Don t know 0% 20% 40% 60% 80% 100% Page 33

34 30. The regional breakdown of respondents appears below: In what region are you personally based? North America (United States/Canada) 37% Asia/Australia 30% Europe 24% Mexico/South America/Central America 8% Other 1% 0% 10% 20% 30% 40% Page 34

35 31. The country split of respondents is as follows: In which country are you personally based? United States United Kingdom India Hong Kong Singapore Germany Canada Japan France Australia Argentina Mexico Spain Belgium Sweden Netherlands Switzerland Italy Finland Denmark Other 1% 1% 1% 0% 0% 0% 0% 7% 6% 6% 6% 5% 5% 5% 5% 5% 4% 3% 3% 7% 32% 5% 15% 25% 35% Page 35

36 32. The spread of business activities across the firms surveyed appears below: What is your organisation s primary business? Financial services/real estate/insurance Auto/Industrial/Manufacturing Business/Professional services Wholesale/Retail trade Construction Food/Beverages/Consumer packaged goods Health care Hardware/Software/Networking Chemicals/Energy/Utilities Media/Entertainment/Travel/Leisure Telecommunications Transportation/Warehousing Pharmaceuticals/Biotechnology/Life i Public sector/nonprofit Aerospace/Defense Natural Resources/Mining Other 8% 8% 7% 6% 6% 5% 4% 4% 3% 3% 3% 2% 1% 2% 11% 13% 16% 0% 10% 20% Source: CFO Research Services, Boston, Massachusetts. Page 36