Corporations 'cautious about recovery'
Dubai, February 14, 2010
The corporate world is still nervous about the economic recovery this year, according to a survey of senior executives at nearly 900 major companies worldwide.
More than 50 C-suite executives of major corporations in Middle East and Africa took part in the survey by Ernst & Young.
Ernst & Young’s 'Lessons from Change' survey findings revealed that over half (53 per cent) of the companies agreed that surviving 2010 would still remain a challenge as compared to nearly three quarters who said they were focused on securing the survival of their present business twelve months ago.
However, the percentage looking to pursue new opportunities this year has also risen to 34 per cent from 19 per cent in January 2009. Companies focused on improving the performance of their current assets were down from 39 per cent to 27 per cent, and the proportion still restructuring their business also declined from 37 per cent to 27 per cent over the year.
“The region has, in varying degrees, bucked the more extreme after-effects of the downturn. Organisations may be less worried about survival over the next 12 months, but the return to a healthy operating environment is still some way off. The overwhelming view is that most companies are still focused on securing the present, which means that companies are still at the early stages of responding to the current environment,” said Tariq Sadiq, Middle East Markets Leader, Ernst & Young Middle East.
Three-quarters of respondents said they believed that there were still major costs savings to be made in their organisation through improved efficiency in 2010. A high proportion of companies (72 per cent) felt they needed to increase the flexibility of their operations through reducing fixed costs, particularly among support functions and improving productivity.
The next most popular response was optimising the markets they serve (64 per cent) via new market entry, new products or new channels, and through revitalising the business model (64 per cent) with new thinking around organisational structure, core competencies and new business collaborations. Respondents also believed that accelerating their decision making processes and execution (63 per cent) and strengthening their management talent (62 per cent) would be critical to improve their chances of success.
Exactly half of all businesses agreed that restricted access to capital will continue to constrain their growth prospects over the next year, yet a significant minority of respondents (30 per cent) said they intended to take an aggressive growth-oriented stance as the demand outlook in their markets is improving. A further 49 per cent of corporates said that they intended to pursue growth opportunistically, as the prospects for recovery in their markets remain unclear. The remaining fifth of companies said that their strategic focus will remain squarely on cost control until the market improves.
“It is clear that many companies are seeking to learn the lessons of the changed market. These successful companies are essentially equipping themselves for the new economy and navigating a new future. This actually represents a very entrepreneurial outlook – a trait that many of the biggest firms in the region already advocate.”
While they are out of crisis mode, corporates are now turning their attention to when there will be a full recovery in earnings. Approximately one-third saw revenue growth returning within six months, one-third said by the start of 2011 and the final third not for at least two years. Only 1 per cent were pessimistic enough to say it would never return to pre-recession levels.
“Regional corporations also understand that the shape and form of their operations in 2010 will depend on the recovery patterns of individual countries which are determined by the way individual economies have responded to the downturn. Economies that were healthier before the downturn will emerge with their status enhanced while the weaker economies will take longer get back to a steady growth path,” Tariq added.-TradeArabia News Service