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Companies Cautious on 2010 Recovery: Ernst & Young

Although half of these companies believe that a lack of capital will continue to restrain growth prospects this year, about 30 per cent of respondents said they would go aggressive on growth-oriented strategies as demand outlook in their markets improves.

A comprehensive survey of senior executives at nearly 900 major companies worldwide by Ernst & Young revealed 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.

Ernst & Young said that more than 50 C-suite executives of major corporations in Middle East and Africa took part in the study.

Ernst & Young’s “Lessons from change - findings from the market” revealed that, 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.

Tariq Sadiq, Middle East Markets Leader, Ernst & Young Middle East Ernst & Young said in a statement that the region has, in varying degrees, bucked the more extreme after-effects of the global 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,” he said.

“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.”

What will Happen in 2010?

Three-quarters of respondents said they believed that there were still major costs savings to be made in their organisations through improved efficiency. A high proportion of companies, about 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 revitalizing the business model with new thinking around organisational structure, core competencies and new business collaborations. Some 63 per cent of respondents also believed that accelerating their decision making processes and execution and strengthening their management talent would be critical to improve their chances of success.

80% Look to Growth

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 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,” Sadiq said. “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.”

Pre-Recession Earnings Out of Sight

While they are out of crisis mode, companies are now turning their attention to when there will be a full recovery in earnings, the study showed. 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 was 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,” Sadiq said.

Action Programme 2010

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

(Source: Ernst & Young)

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