|May 15, 2012|
American Express/CFO Research Global Business & Spending Monitor
|Senior finance executives worldwide are expressing moderate optimism about the prospects for economic growth over the next twelve months. Investments in expanded operating capacity, research and development, and mergers and acquisitions are on the table as finance executives dip into their companies' cash stockpiles. Hiring is also on the rise, with a majority of finance executives planning to increase headcount over the next twelve months. |
These findings were released in the fifth annual American Express/CFO Research Global Business & Spending Monitor, a survey of 541 senior finance executives from the U.S., Europe, Canada, Latin America, Asia and Australia.
"Finance executives are looking for ways to stimulate growth, in part by deploying some of the cash that has built up on corporate balance sheets in recent years," said Janey Whiteside, Senior Vice President, Global Corporate Payments, American Express. "Finance executives also report they'll be keeping a sharp eye on the bottom line, while spending selectively on activities that will drive revenue like sales and marketing and new product development."
Moderate on Growth, Aggressive on Targets
Finance executives continue to be optimistic about the economy. This year, 64% report expectations for modest to substantial expansion over the next twelve months, but that's lower than in 2011 and 2010 (when 75% and 71% of all respondents anticipated economic expansion, respectively).
Worldwide, the outlook for economic expansion among the countries covered by this study was brightest in India (86%), followed by the U.S. (78%), Germany (74%), Mexico (73%), Argentina (70%), Australia (69%), and Canada (67%).
In terms of when the global economy will gain greater strength, nearly half of the world's finance executives (46%) believe that "robust" economic growth will return in their countries by the end of 2012.
• Countries where finance executives are most bullish include Hong Kong, where 83% of respondents expect their local economy to return to robust growth by the fourth quarter of 2012, followed by Mexico (77%), and Germany (66%).
• Respondents in the U.S. and the U.K. report a more extended growth horizon. Three-quarters of U.S. finance executives (75%) and 58% of U.K. finance executives see robust growth returning at some point after the close of 2012.
Finance executives are also setting a higher bar for their own companies' growth. Three in five (60%) have set more aggressive growth targets compared with 2011. Although a quarter of respondents report that they are "very confident" that their companies will meet their growth targets in 2012, most respondents are only "somewhat confident" that their companies will meet their targets (56%), while 16% are "not very confident" in their companies' ability to meet their targets.
Opening the Coffers
After amassing large cash reserves as a buffer against the economic uncertainty of the past few years, many finance executives say their companies intend to deploy these resources in 2012. Around the world, respondents who say their companies are likely to spend down some portion of their cash reserves in the course of 2012 (45%) outnumber those who say they are not (34%). This is an important change from last year, when a sizeable majority of all respondents (62%) were pursuing a deliberate cash preservation strategy.
Many finance executives say they are likely to use this cash to fund ongoing operations (74%). Other frequently cited cash destinations include activities focused on energizing growth, such as:
• Expanded operations and headcount (70%)
• Increased capital spending (69%)
• Increased research and development (68%)
• Mergers and acquisitions (66%)
U.S. respondents are even more willing than their peers working elsewhere to dip into their cash stockpiles (52%). Almost two-thirds of U.S. finance executives (63%) are likely to use these funds for M&A activity --- topping their list of eventual destinations for their cash reserves.
With improving economic conditions, a majority of finance executives worldwide (53%) plan to increase headcount over the next twelve months. Fewer than one in three (30%) plan to reduce jobs.
In the U.S., the hiring picture is slightly more positive compared with other participating countries, with 56% of respondents planning to add jobs and just 22% planning to cut positions.
A majority of companies that are hiring will be looking to acquire specialized skills, expertise or experience (53%). This motivation for hiring comes in well ahead of "adding jobs in order to expand production capacity" (20%) or "restoring capabilities that were reduced in recent years" (17%).
Safe, Smart and Selective
Companies are likely to take a conservative approach to spending and investment over the coming year. Nearly half of all respondents (49%) report that "modest spending and investment to support top-line growth while improving profitability" will characterize their approach to spending and investment. In contrast, only 14% of respondents say they plan to "spend and invest aggressively to boost top-line revenue."
In keeping with that balanced approach to spending and investment, respondents say their companies will invest selectively over the next twelve months, focusing closely on investments that will support long-term growth.
• 50% are likely to invest more in 2012 to expand market access through increased sales and marketing activities.
• 46% will invest more in new product or service development.
Finance executives are holding the line on travel spending. A majority of respondents (58%) will spend the same or more on business travel over the next twelve months. However, that's down from 2011, when 64% of respondents planned to spend the same or more over the same period of time.
• To make the most of their travel budgets, companies will focus their resources on travel that is closely connected with revenue expansion. Almost nine in ten (88%) will spend the same or more on travel to meet with current or prospective customers --- with 38% likely to spend more.
"Frequently, business travel is a key factor that enables companies to win on a national and global scale," Whiteside said. "Our research suggests that when companies see a positive return on investment from travel, they will continue to spend on it."
Volatility -- Friend or Foe?
Many finance executives around the world say their companies are managing volatility effectively --- and some even identify volatility as a source of competitive advantage.
• One in three respondents (33%) say they are thriving on volatility and see it as a source of competitive differentiation for their companies.
• Another one in three simply view it as part of the business landscape (34%).
• A slightly smaller number (28%) see volatility as a problem that is likely to negatively affect their profits or growth prospects.
For the full American Express/CFO Research Global Business & Spending Monitor, visit: www.americanexpress.com
About the Research
CFO Research Services surveyed 541 senior finance executives at large global companies across a wide range of industries in the U.S., Europe, Canada, Latin America, Asia and Australia. Company revenues ranged from $500 million to more than $20 billion. The research program, which included an online survey and interviews with senior finance executives, was completed in March 2012.