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Thursday, July 29, 2010 Economy Bottoms Out In Mid 2010 - Rising Unemployment Dampens Growth
NEW YORK - The crisis has bottomed out. The majority of companies questioned expect a significant recovery from the middle of this year, even if a short-term rise in unemployment may dampen economic growth. Asia will benefit most from global growth. The focus last year was on reducing costs and safeguarding liquidity, but managers are now returning to growth and sales initiatives. These are the key findings of the new "International Restructuring Survey 2010" by Roland Berger Strategy Consultants. The strategy consultancy surveyed board members and CEOs at around 5,600 global companies from fourteen different industries (return rate 8.5 percent). "The crisis has bottomed out," said Thomas F. Wendt, Principal with Roland Berger Strategy Consultants. "Companies from all over the world are again pursuing a growth strategy." Globally, companies expect to see a significant recovery from the middle of 2010 – even if it is partly reduced by further hikes in unemployment. Growth from the middle of 2010 Businesses expect economic growth to reach 1.1 percent as a global average for 2010, picking up to 1.6 percent in 2011. "The most optimistic growth expectations are for China, at 8.5 percent for this year and 8 percent for next year. Europe and Japan, at just one percentage point, are seen as the regions likely to trail behind," said Juergen Reers, Managing Partner with Roland Berger in North America. "Respondents identified the industries that should benefit most from the upturn as energy, utilities, pharma and health care as well as financial services." Savings targets met – especially in HR Most companies made big efforts to reduce their personnel costs during the crisis. These savings came to 9 percent as a global average for 2009. The biggest HR savings were made in the US (more than 10 percent). China and Japan also emerge as overachievers who slightly exceeded their savings targets. In Western Europe, 34 percent of the companies surveyed did cut their HR costs by more than 10 percent, but 40 percent say this figure remains the target. Financial recovery, but worsening credit terms Most companies have become more optimistic about their financial position for this year. "In the crisis, the liquidity situation became a critical issue for 40 percent of businesses," says Thomas Wendt. "This still applies to about 20 percent today." As for firms still having to deal with insufficient liquidity, the survey found above-average numbers in China, Eastern Europe and the Middle East. But this is now a problem for only 14 percent of companies in Western Europe and 5 percent in the United States and Japan. Businesses have adopted operational cash management to safeguard their liquidity position. "The most common response is to take operational steps like improving receivables collection (76 percent). Only a third of the companies responding said they were planning to take out additional bank loans," notes Thomas Wendt. The terms for obtaining new bank loans have worsened for around half of the companies. The main complaints concern higher interest rates and tougher collateralization requirements. Asia to benefit most from the upturn As many as 71 percent of respondents think that Asia will benefit most from the forthcoming recovery this year. Even more (85 percent) see improved opportunities for China next year. A third of the executives questioned believe that Europe will have to wait till next year to join in the upswing. There is more optimism about North America taking off in 2011 (46 percent of respondents). As the world economy recovers, 69 percent of the companies surveyed say they want to concentrate on their core business and 61 percent, especially in the US, plan to launch new products as a growth driver. In Japan, businesses are using the upturn to break into new markets and regions. The majority of companies worldwide plan to self-finance future growth with their own resources. Almost a third of companies are worried that insufficient finance might impede their recovery. More or less the same proportion identifies another potential obstacle to future growth as unwillingness to take risks. Cautious growth in North America North American picture is quite similar to global expectations. However, the optimism for growth and development in Asia was even more pronounced for NA companies. Central and South America were also viewed as promising by North American companies for demand as well as supply. Along with growth, tight control on personnel costs will continue in North America, which is evident from the slow recovery of job market through Q2 of 2010. Most companies plan to continue restructuring in some form for a additional 6-12 months, and consider management commitment as the key success factor. "There is particularly strong preference for US companies to concentrate on their core competency at the same time invest in new products and regions for growth" says Juergen Reers. Lessons from the crisis "We can learn four important lessons from the crisis," concludes Thomas Wendt: "1. A Downturn can weaken the liquidity position unexpectedly quickly, so businesses need to improve their liquidity buffer. 2. Rapid loss of earnings in the crisis has sucked equity out of many companies. It has become more important than ever to build a comfortable equity position. 3. Cost structures must be prepared for a possible collapse in business. That means creating greater flexibility. 4. The foundations for future growth must be laid early on. Cost cutting must not be allowed to impede company growth." Roland Berger Strategy Consultants, founded in 1967, is one of the world's leading strategy consultancies. With 36 offices in 25 countries, the company has successful operations in all major international markets. In 2009, it generated USD 1 bn in revenues with approximately 2,00 employees worldwide. The strategy consultancy is an independent partnership exclusively owned by about 180 Partners. For more information, click on RolandBerger.Com
Author: Staff Writer Source: MITechNews.Com
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