Even in a slowing global economy, many companies plan to invest in growth, actively looking to reach more customers and allocate more capital to mergers and acquisitions (M&A), according to the results of a survey of 370 senior financial executives from around the world, conducted by CFO Research Services in collaboration with American Express.
The first annual American Express/CFO Research Global Business & Spending Monitor shows that, despite a pessimistic view of the economy and relatively conservative spending plans, companies are pursuing growth and seeking efficiencies by controlling discretionary spending and redeploying investments to organizational, technology and process improvements.
“While it is hard to deny the uncertainty in today’s economic climate, companies around the world are looking for ways to maintain their growth momentum,” said Gunther Bright, senior vice president, Global Commercial Card at American Express. “They are not only looking for ways to better manage and control their expenses, but are pursuing investments that will allow them to reach more customers in new and better ways – all in an effort to preserve the bottom line while proactively driving top-line growth.”
Learning from Actions in Previous Downturns
In this challenging economic environment, companies are looking back to their actions during previous downturns to help guide them toward growth this time around. Of the companies surveyed, 70% say that their investment priorities have changed, at least moderately, in light of recent economic developments.
Respondents are more likely to say that in the previous downturn they should have invested more in production efficiencies, administrative process efficiencies, and in expanding market reach (or ways to reach more customers) than in other investment areas. These are the same areas where respondents indicate they plan to invest more in the next 12 months – trends that are consistent from companies across all regions and industries.
- Looking back on the last downturn that affected their companies, 38% of respondents believe they should have invested more to improve production process efficiency, 34% should have invested more to improve administrative process efficiency, and 34% should have increased their investment in expanding market reach. In contrast, only 23% say their companies should have invested more in product or service development, and only 18% say they should have invested more in new production capacity.
- Today, 57% of respondents plan to invest more to improve production process efficiency over the next 12 months, 56% plan to invest more to expand market reach, and 55% plan to improve administrative process efficiency over the next 12 months.
Path to Progress: Invest in Marketing and M&A
To boost growth and maintain profitability, finance executives say their companies plan to take some of the following steps:
- Respondents are more likely to say they plan to increase spending on marketing, advertising and PR services than any other spending category (32%). These are services that, by definition, help companies reach more customers.
- Similarly, respondents say their companies plan to take a relatively conservative approach to capital allocation in the coming year. Respondents are more likely, however, to say they plan to increase capital allocation to M&A (29%) -- a strategy often pursued to expand market reach -- than to any other allocation category.
- Companies will look to improve efficiency by reducing discretionary spending, such as on indirect line items (37%), and pursuing a combination of organizational, technology, and process improvements.
- 56% of respondents indicate they anticipate headcount growth in the next 12 months, while most of these respondents (46%) indicate it will only be modest growth.
Getting More out of Travel with Less
Companies are looking to get more from their travel dollars. Most survey respondents expect travel frequency to stay the same or increase. At the same time, respondents (except those in Asia) are more likely to say they expect their companies will spend less on travel in the coming year than to say they expect to spend more on travel. Taken together, these results suggest that companies will seek to economize on travel and to tighten controls on travel spending.
U.S. respondents (45%) are more likely than their peers (36% in Asia, 31% in Canada, 30% in Mexico and 21% in Europe) to say they plan to restrict domestic travel, as well as travel that is less likely to be critical to business growth, including conferences, retreats and training events.
- 55% of U.S. respondents are likely to restrict travel to conferences, management retreats and training events, compared to only 41% of respondents in Mexico, 38% in Asia, 33% in Canada and 29% in Europe.
Rising Energy Costs Threaten Performance
The rising cost of energy proves to be an urgent concern among respondents globally, outstripping other worries that could affect the production and delivery of goods and services, including the cost of capital, labor and raw materials, by a fairly large margin.
- 42% cite the cost of energy as an urgent concern compared to 22% that cite labor costs and 26% that say the cost of capital is of urgent concern.
When asked about factors that affect the demand for goods and services, survey results suggest that respondents’ anxiety is evenly distributed between reduced appetite for consumer goods (30%), unfavorable currency exchange rates (30%), and high interest rates (30%).
Although economic prospects vary by region, only about one in five respondents say they expect substantial growth in their primary industry and for their individual company over the next year.
- U.S. respondents tend to be far more pessimistic about domestic economic prospects than their overseas counterparts, with 57% predicting economic contraction in the U.S. for the coming year. Twenty-seven percent of European respondents anticipate contraction in their countries, 26% in Canada, 13% in Asia and only 7% in Mexico.
- Only 3% of U.S. respondents say they anticipate substantial industry growth in the next 12 months, well below respondents’ growth estimates elsewhere. Thirty percent in Mexico, 20% in Canada, 38% in Asia and 26% in Europe predict substantial industry growth.
At the same time, over three-quarters of respondents report that a sustained downturn in the U.S. economy would have at least some impact on their company’s growth prospects.
About the Survey
In April and May 2008, CFO Research Services surveyed 370 senior finance executives at large and global companies across a wide range of industries in the United States, Canada, Mexico, Europe, Asia and Australia. Company revenues ranged from $500 million to more than $20 billion. The survey explores companies’ investment priorities and spending plans over the next 12 months, as well as how their strategic priorities have shifted in light of the current economic environment. These results are among the findings of the CFO Research Services study, which includes the survey and interviews with senior executives at large companies around the world. CFO Research’s full report on the results of this program will be published in late June.
About American Express Global Commercial Card
Through its Global Commercial Card group, American Express provides the Corporate Card, Corporate Purchasing Solutions, and other expense management services to mid-sized companies and large corporations worldwide. In the U.S., it is the leading issuer of commercial cards, serving more than 60% of the Fortune 500, as well as tens of thousands of mid-sized companies. American Express issues local-currency commercial cards in 40 countries, and International Dollar Corporate Cards in an additional 100 countries. For more information, visit www.americanexpress.com/corporate.
American Express Company (www.americanexpress.com) is a leading global payments, network and travel company founded in 1850.
About CFO Research Services
CFO Research is the sponsored research unit of CFO Publishing Corp., which publishes CFO magazine in the United States, Europe, China, and Asia. CFO Publishing is an Economist Group business.