Corporations still cautious about recovery in 2010
Dubai 14 February 2010: A comprehensive survey of senior executives at nearly 900 major companies worldwide by EY reveals a very different business environment compared to twelve months ago but highlights a corporate world that for the most part is still nervous about recovery. More than 50 C-suite executives of major corporations in Middle East and Africa took part in the study.
EY’s Lessons from change - findings from the market revealed that, over half (53%) 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% from 19% in January 2009. Companies focused on improving the performance of their current assets were down from 39% to 27%, and the proportion still restructuring their business also declined from 37% to 27% over the year.
Tariq Sadiq, Middle East Markets Leader, EY Middle East EY says: “The region has, in varying degrees, bucked the more extreme after-effects of the downturn. Organizations 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.”
And what will happen in 2010?
Three-quarters of respondents said they believed that there were still major costs savings to be made in their organization through improved efficiency. A high proportion of companies (72%) 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 optimizing the markets they serve (64%) via new market entry, new products or new channels, and through revitalizing the business model (64%) with new thinking around organizational structure, core competencies and new business collaborations. Respondents also believed that accelerating their decision making processes and execution (63%) and strengthening their management talent (62%) would be critical to improve their chances of success.
80% look to growth despite problems with accessing capital
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%) said they intended to take an aggressive growth-oriented stance as the demand outlook in their markets is improving. A further 49% 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.
Tariq adds, “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.”
Earnings at pre-recession levels is a long way off
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% were pessimistic enough to say it would never return to pre-recession levels. Tariq adds: “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.”
Action programs for corporates in 2010
EY research indicates that although there is no silver bullet – no single action that will deliver success – a number of action programs set high-performing companies apart. These are:
• Seeking to develop a broader and a deeper view of their market opportunities, today and tomorrow.
• Being more innovative in strategy and structure than their competitors, more collaborative with partners and more questioning of themselves and their potential
• Taking a much more holistic and long-term approach to their people and communicating more frequently and transparently to both their internal and external stakeholders
• Broadening their understanding of risk in their market and from their actions, and tightening their execution and key support processes to mitigate that risk
• Pursuing and attaining greater speed in making and executing decisions to take advantage of their changing market