Business Continues to Cut Costs As Recession Hits Europe
A survey of leading executives across Europe and the Middle East has shown that businesses are continuing to cut costs and focus on efficiencies – in the face of persistent uncertainty over the global economy and the future of the Eurozone.
KPMG’s Business Leaders Survey polled almost 3,000 senior executives across 31 countries.
The survey revealed that the top five issues for the businesses questioned are:
Changing business operations to realise cost efficiencies (43 percent)
Improving cash and working capital management (32 percent)
Exploiting growth opportunities through successful transactions (30 percent)
Preparing the organisation for major business model changes (25 percent)
Managing, developing and retaining the right people within the organisation (24 percent)
Sectors where cost efficiency priorities are greatest include consumer goods, retail and the communications industries.
Jeremy Kay, partner in KPMG’s operations strategy group, said: “By now – some time into the downturn – business leaders could be expected to have completed many of those tough decisions regarding their cost base. But the challenge seems to be greater than was realised, and there remain plenty of structural concerns for businesses to have a long, hard think about – with investors and shareholders keeping management teams under more pressure than ever.
“In our view, what has been going on is that organisations have made the easy choices on costs but stopped short of making more fundamental decisions. Likening the situation to a hot air balloon drifting downwards, they have grabbed a few sandbags and tossed them over the side but they have not really addressed the issue of having too many assets in their ‘baskets’. The risk is that the balloon will land with an unexpected and nasty bump.”
The KPMG survey revealed that there is a healthy appetite for transactions or re-financing deals to generate growth – especially in non Eurozone countries. This was a particular priority for respondents in the Middle East, including Qatar (48 percent), UAE (45 percent), Oman (43 percent) and Kuwait (42 percent).
Jeremy Kay said: “Unsurprisingly, the lack of vigorous growth continues to compel many businesses to grow the bottom line through transactions, either by acquiring market share or the divestment of underperforming divisions.
“A quarter of CEOs are looking at major business model changes, in some sectors such as retail or media this is by far the most important theme key topic. One interesting outcome of our latest survey is the new focus on talent management and people. It highlights the importance of a strong motivated workforce to maintaining the business when growth is limited.”
The survey also revealed a concerning lack of corporate planning in response to the current Eurozone crisis. 36 percent said they were doing nothing about the Eurozone crisis; less than a quarter (23 percent) reported that they were undertaking group led contingency planning across a range of options.
Jeremy Kay said: “Business leaders expect dramatic events in the Eurozone but seem to be doing little to plan for that eventuality. For many this lack of activity may well be a conscious decision – at least for now. The issue they face is that there are so many possible ways that the situation could play out that concrete planning is very challenging.”
“However, I would have expected far more companies with operations likely to be affected by events in the Eurozone to have produced contingency plans. Looking at this issue should be part of business-as-usual for these respondents; not at how they exit from affected countries necessarily but at how the austerity measures being implemented there are likely to have an impact on their operations.
Opinions were split on the degree to which austerity was affecting respondents. Just over a third (34 percent) agreed with the statement “austerity measures designed to reduce government deficits are impeding my business” but slightly more (37 percent) disagreed.
However, British and European businesses appeared to be hurting more than the overall sample. Almost half (47 percent) of UK respondents agreed or strongly agreed that austerity measures were impeding their business. The figures for France and Germany were 60 percent and 41 percent respectively, 87 percent in Greece (albeit with a relatively small sample size of 43 businesses) and 60 percent in Spain.
Jeremy Kay remarked: “British and European businesses are clearly feeling the effect of the various austerity measures governments have introduced to try to reduce deficits. The effect across the overall sample is slightly reduced, most likely due to a variation in measures being implemented in different countries and also because the sample includes some Middle Eastern countries where austerity is not so much of an issue. Clearly with business growth being key to recovery, it’s important that governments balance the very real need to trim their deficits against maintaining a business-friendly environment.”
This is the third “Business Leaders” survey conducted by KPMG. Conducted online between 9th – 26th January it is based on the views of respondents from 31 countries (Austria, Bahamas, Bahrain, Belgium, Bermuda, Cayman Islands, Cyprus, Czech Republic, Denmark, Dutch Caribbean, Germany, Greece, Ireland, Italy, Jordan, Kuwait, Luxembourg, Malta, Norway, Oman, Poland, Portugal, Qatar, Romania, Saudi Arabia, Slovakia, South Africa, Spain, UAE and UK).
Designed to identify where executives are focusing today and what the most important topics for their organisations are, the survey is carried out regularly in order to monitor trends and identify how are business needs evolving in the current environment.