Growth biggest challenge for Asia Pacific businesses: CFOs
- Cost-reduction and cash flow key priorities
- Opportunities exist in rapid growth markets
Tuesday, 20 March 2012 — A new survey of Chief Financial Officers (CFOs) across Asia Pacific has found 62% believe achieving growth in the current climate is the number one challenge for businesses.
Based on responses from 247 of the region’s top CFOs and Finance Directors across 15 countries including Australia and New Zealand1, the first report in Ernst & Young’s CFO Master Series “Making headway in a volatile world” discusses the opportunities and challenges for business operating in the global economy.
Ernst & Young Oceania CEO Rob McLeod said the survey was designed to tap into how finance executives were responding to ongoing market volatility and what they considered to be the current business critical issues.
Asked to rank their top three challenges for business, the region’s CFOs said:
- Sluggish consumer demand in Europe and the US – demonstrating the region’s vulnerability to the economic crises playing out in the rest of the world.
- High commodity prices – increasing the cost of manufacturing inputs. In countries where manufacturing demand has stabilised or fallen, companies are looking to maintain or decrease output, pointing to the potential for manufacturing facility closures and redundancies.
- Human resource issues – particularly hiring, retention and wage inflation. In Asia’s growth markets, businesses are struggling to find executives with the right mix of skills, who also speak the local language, know the culture and understand the market.
“The consequence of CFOs across Asia Pacific gearing their efforts around tackling these challenges has been a sharp and heightened focus on cost control, cash flow and risk management.
“CFOs are at the market coalface, so it’s understandable they’re concerned about the impact of Europe’s sovereign debt issues and the United States’ ongoing debt crisis on the region’s economy and business viability,” Mr McLeod said.
Mr McLeod said Australian and New Zealand-based CFOs see improving profitability through cost-cutting including business process outsourcing as a key opportunity. Across the Asia Pacific region, 63% of respondents see cost management as more of a priority now than three years ago.
“The challenge will be reducing costs without sacrificing innovation and longer term growth opportunities. It’s a delicate balancing act that also needs to be juggled with competing stakeholder expectations.
“Achieving growth in a precarious business environment while at the same time balancing market expectations is potentially the biggest challenge CFOs have had to face since the global financial crisis and perhaps well into the future,” Mr McLeod said.
Depending on their industry, CFOs in Oceania also flagged tough retail conditions, weakened consumer sentiment, the high Australian dollar and the cost of labour as key challenges. In Asia, rapid growth market issues including rising competition and sluggish consumer demand were cited as the next big concerns.
In Australia and New Zealand, CFOs were also concerned about the availability of credit given the banking systems’ reliance on offshore funding. Sixty-two percent of Australian and New Zealand CFOs surveyed said cashflow was the most important priority and critical for taking advantage of business opportunities.
Other findings of the survey included:
- Despite 67% of their companies achieving EBITDA growth in the past 12 months, the region’s CFOs are increasingly concerned about the difficulties of continuing to deliver such results.
- Seventy-seven percent of Asia-based CFOs agreed or strongly agree the shift from focusing on financial performance to being able to manage multiple stakeholders is one of the most difficult challenges for financial managers.
- Across the region, 46% of respondents cited attracting and retaining talent as a challenge. In Asia in particular, more than half (53%) expressed this as a concern. This is particularly the case in the regional hubs of Hong Kong and Singapore, where competition for talent is strong.
- Unsurprisingly, 54% of surveyed CFOs have a greater focus on risk management than they did three years ago.
- Across the region, 29% of CFOs view business transformation programs as more of a priority than three years ago. In Asia, 36% see this as more of a priority. Notwithstanding the challenges, CFOs believed there continued to be opportunities in organic growth markets, by tapping consumer demand in rapid growth markets and improving brand equity of their existing product line.
“While the role of the CFO has continued to evolve over the past few decades, it has arguably undergone the most significant transformation as a result of the past five years of economic turmoil.
“Asia Pacific CFOs are increasingly taking on far more strategic roles to steer their organisations safely through tight credit markets, complex regulation and fluctuating trading conditions. Of course many have been doing this for years, and for the others it’s certainly time to step up,” Mr McLeod said.
For a copy of the report please see ey.com
1The survey was conducted by the Economic Intelligence Unit and is based on data from 247 CFOs across listed and private companies in Australia, New Zealand and 13 key markets in Asia, including China, Hong Kong, Taiwan, Singapore, India, Sri Lanka, Japan, South Korea, Indonesia, Malaysia, Thailand, Vietnam and the Philippines.
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Ranked in order, the least wasteful industries based on how much time their workers say is wasted on a typical day were:
- Professional, scientific and technical services (17%) and health care and social assistance (17%)
- Financial and insurance services (19%)
- Trade- retail and wholesale (19%), public sector (19%), manufacturing (19%), and
- Construction and mining (20%).
Based on workers rating their organisation’s efficiency, the ranking changes to:
- Financial and insurance services (68%)
- Professional, scientific and technical services (66%)
- Health care and social assistance (64%)
- Construction and mining (63%)
- Trade (retail & wholesale) (60%)
- Public sector (56%), and
- Manufacturing (55%).
Ranked in order, the most productive states based on the least amount of time wasted on an average day were:
- Western Australia (16% of day wasted)
- South Australia (17%), ACT (17%) and Tasmania (17%)
- New South Wales (18%)
- Victoria (19%) and Queensland (19%), and
- NT (29%).
Based on workers’ views about the efficiency of their organisation, the order changes to:
- Western Australia (66%) and South Australia (66%)
- Queensland (62%)
- New South Wales (61%), and Victoria (61%)
- NT (59%) and ACT (59%)
- Tasmania (47%).
- 68% of respondents are proud to work for their employer
- 69% believe their work is valued
- 78% have a clear vision of what is expected of them in their role.
- 36% do not agree that their organisation’s processes and systems support role execution
- 41% do not agree that their organisation has the right level of focus and attention on effectiveness and efficiency
- 38% do not agree that their organisation operates effectively.
- 32% say they are planning to leave their organisation in the next 12 months
- Only 62% believe their skills are being strongly utilised by their employer
- 35% are already pursuing external opportunities. Approximately half of all respondents do not agree that there is a clear direction for their career at their current organisation.
- 51% say further innovation would increase productivity
- 44% do not agree their organisation gives innovation the right focus and attention
- 41% agree that innovation is not adequately recognised and rewarded
- 48% of people agree that there is a culture of continuous improvement in their organisation, 33% were neutral and 19% disagreed.
- 62% of respondents agree technology is important to their role
- 40% say technology has increased productivity levels
- The professional, scientific and technical sectors fare best on the technology front, with 55% of employees acknowledging technology has increased productivity levels over the past 12 months.
- 65% say additional, new or improved technology would make their organisation more productive over the longer term
- 39% don’t have access to the right technology and 42% don’t have the right training to apply technology effectively
- The construction and resources; and retail and wholesale trade sectors rank the highest in terms of technology wastage with at least 10% per week.