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Gearing for Growth Results rise to meet expectations for global businesses Regus Business Confidence Index – Issue 4 – April 2011Global business optimism, having undergone a slight decline in 2010, has now surgedahead, according to the latest half-yearly Regus Business Confidence Index survey. Theregular global survey shows a significant increase in the proportion of firms reporting a risein revenues and profits, as well as a growing alignment between future outlook and actualresults, with real revenues coming into alignment with previous surveys’ predictions.The survey also reports departmental spending mainly on the rise, showing thatcompanies are keen to invest in catching the wave of economic recovery. However, thereis one notable exception to this trend – property costs. Having been caught out byinflexible commercial property arrangements during the recent economic downturn, firmsremain committed to scrutinising and, where possible, reducing fixed premises costs infavour of more flexible workspace solutions that can easily scale as growth is achieved.This reflects previous Regus surveys which have shown a trend away from fixed officeworking towards more flexible working practices.Management Summary New research by Regus shows that expectations expressed in October 2010 by 61% of respondents that their revenues would grow in the following year, have been confirmed, with 50% of companies reporting revenue growth in March 2011. This contrasts with previous editions of the Regus global survey, where predictions of revenue growth were not being met by actual rises. This positive outlook is matched by predicted rises in departmental spending this year. 47% of companies expect to increase their marketing spend; 48% will invest more in sales; and 33% envisage putting more into product development
However, there is one area of departmental spending that is expected to experience little growth or even actual decline – the property department. The report reveals 81% of companies globally intend to reduce or freeze their property or premises costs this year. This result indicates a strong will on the part of businesses to enthusiastically drive growth, but at the same time steer clear of incurring unnecessary fixed costs related to under-used or unused premises space. The Regus Business Confidence Index, which analyses aggregate positive forward-looking statements reveals that global optimism has grown 25 points since autumn 2009. Globally 41% of companies are also reporting that revenue growth is closely mirrored by profit growth - a positive indicator that economic advance is mostly solid with a majority of companies investing on the basis of increasing profitability. Most companies (54%) believe that the full momentum of the economic recovery will take place in the latter half of 2011 or the first half of 2012. This prediction highlights that expectations for the peak of recovery have slipped a little to the end of 2011, rather than the first quarter of 2011.
Geographical Highlights Asian giants continue to lead growth with 60%+ of companies experiencing both revenue and profit growth in the past twelve months in China and India. China takes the lead with 72% of companies reporting revenue growth compared to 67% in India. The trend repeats itself in the profits outlook, where 62% of Chinese companies report profits rising compared to 60% of Indian firms. Germany and Belgium are close behind, however, with 64% of German and 61% of Belgian companies reporting revenue growth. The proportion of companies experiencing profit growth over the past year is also positive, at 54% in Germany and 55% in Belgium. At the other end of the scale we find Japan, in contrast with other Asian countries, with a low proportion of companies reporting profit growth at 23%, and Spain where only 18% of companies reported profits rising. Nevertheless these results are highly positive when compared to the October iteration of the survey where Spanish profit growth was negative (-21%) and Japan only had 6% of companies experiencing profit increases. Optimism is highest in China, Belgium, Germany and India and lowest in Spain. The UK and the USA remain towards the lower end of the optimism scale with other western economies such as France and the Netherlands. Optimism growth in the last six months has been high in Japan (+36 points) and Spain (+33 points) indicating that although conditions for business are not yet optimal, a significant improvement has been achieved. It is worth noting that due to natural disaster and nuclear hazard Japanese optimism may have taken another turn for the worse after the collection of this data.
IntroductionReports globally confirm that the economic recovery is advancing, Asian giants continue on their high growthpath as Western Economies recover from the downturn, but governments warn that the speed of recovery isnot as fast as hoped. 1 Nevertheless, the differing conditions that economies face affect their outlook for thecoming year with the IMF predicting 4.2% global growth for 2011; developed countries are expected to growat half that pace, whereas and India and China are expected to move faster at more than 6%. 2In Asia, potential effects of the Japanese tsunami and earthquake disaster are not expected to excessivelyimpact the bilateral trade with China , although Japan is China’s largest source of imports particularly in thehigh-tech automotive products arena. Effects on the Eurozone are also regarded as negligible. 3 Chinasindustrial activity, is reported by Markit to have risen in March after a slower February. Positive indication ofthe success of government’s policies to contain inflation without affecting growth was found in the slowing ofinput and output prices sub indices growth. 4 India remains positive with the sharpest growth in the servicessector since July 2010 being recorded in February, whilst manufacturing remained unchanged since the startof the year. 5In the Eurozone, Markit’s PMI highlights that economic activity continues to expand at a rate of growth whichis second only to that recorded in July 2007 with manufacturing taking the lead (although the services sectoralso expanded). Germany and France fared particularly well in March, while the situation in the rest of thecurrency zone was reported unchanged or weaker than February. Output prices rose for the eighth monthrunning keeping inflation close to high February levels. 6 In particular the UK government reports thatinflation will remain between 4% and 5% this year before dropping to its 2% target in 2013. Mr Osborne, theUK Chancellor, has also highlighted that the pace of growth has not been as rapid as expected and theBudget indicates that unemployment is expected to rise to 8.3% in the last quarter of 2011. 7The UK is not alone in bemoaning the slow speed of recovery in the last year - US GDP has only grown only2.8% instead of the original government projection of 3.2%. Lower consumer spending and a fall in demandfor long-lasting consumer goods exports are partially to blame for this figure, contrasting with Germanywhere the IFO Institute found in February that growing export demand is boosting business confidence. 8 Inspite of this, the USA labour market appears to be recovering with the advance unadjusted insuredunemployment rate down to 3.4% during the week ending March 12th compared to 4.1% a year before. 91 Grant Thornton, IBR, 2011, PwC , Growth re-imagined, 2011;2 1 IMF World Economic Outlook (October 2010). Estimates for shares of the world economy made on a purchasing power parity basis.3 th Reuters, Global recover marches on, prices soar in Europe, 24 March 20114 th Markit, HSBC Flash China Manufacturing PMI, 24 March 20115 rd Markit, HSBC India Services PMI, 3 March 20116 Markit, Flash Eurozone PMI, 24th March 20117 th The Daily Mail, Economic Recovery is taking longer than we expected admits Osborne, 24 March 20118 The Financial Times, US economic recovery weaker than thought, 25th February 2011; Reuters, Global recover marches on, prices thsoar in Europe, 24 March 20119 United States Department of Labor, Unemployment Insurance Weekly Claims Report, March 24th 2011
In South America, high levels of confidence are reported by Grant Thornton’s IBR (International BusinessReview) and the Mexican government is bullishly raising its growth forecast for 2011 on the basis that strongdomestic demand will fuel economic momentum. Ernesto Cordero, Mexico’s Finance Minister is reported tohave declared that Mexican economy will expand 4%-5% in 2011. 102011: where prediction and outcome meetNow in its fourth edition, the Regus Business Confidence Index survey has found that optimistic businessexpectations are at least being matched with the reality of revenue increases. Compared to the revenuegrowth levels recorded a year ago in April 2010, 38% more firms have achieved their objective in April 2011(50%). In late 2009 the Business Confidence Index survey found that only 55% of firms expected toexperience a rise in revenues in the following year. Of this modest group of optimists many must have beendisappointed as only a 19% total of firms could report a revenue rise a year later in October 2010.Similarly in early 2010 only 12% of companies reported a rise in revenues and fully 64% optimisticallyexpected a rise in revenues. Six months later only 19% reported a revenue increase, but a year on andfinally the 50% of companies actually recording a revenue increase begins to align with the 64% expectingto achieve it a year earlier. This alignment looks even closer if we consider that 6 months ago, 61% ofcompanies expected a revenue rise within the next year and half way through the period 50% have alreadyachieved this.The Regus Business Confidence Index ReportThe current economic climate is nevertheless exceedingly volatile with unpredictable events such as thenatural disasters that blighted Australia and Japan in the past few months adding instability to what is aperiod of slow recovery in Western Economies, and a period of great but also extremely speedy, andtherefore difficult to manage, growth in emerging economies. In order to align their plans for the comingtwelve months with global sentiment and trends, businesses rely on timely and realistic information from peercompanies around the globe.The Regus Business Confidence Index Survey was devised specifically with this objective in mind : toprovide businesses with up-to-date information on the views and confidence of other businesses around theglobe to inform their future decisions. The survey is based on over 17,000 responses from businessesaround the world. The pool of respondents is highly representative of senior managers and business ownersand is broadly representative of industries in each geographical region. Companies in 80 countries wereasked about their revenues and profits over the past year, about their intentions to invest in specificdepartments within their organisation and about their revenue expectations for the next 12 months.10 Bloomberg, Cordero Says Mexico’s 2011 GDP May Expand Up to 5% on Domestic Consumption, 22nd March 2011
Revenues and profits around the globeGlobally revenue and profit growth were found to be roughly aligned with 50% of companies reporting arevenue increase and 41% declaring that profits were on the rise. This is an important indication that ratesof growth are sustainable and therefore that the recovery is overall strong enough to result in improvedprofitability for more and more businesses if they are able to ‘read’ the global market and react accordingly.China and India continue their course of remarkably fast growth with the former in the lead. An enormous72% of Chinese businesses reported a rise in revenues in the past year and 62% noted an increase inprofits. In India also 67% of companies recording revenues rising was matched by 60% of firms where profitsrose, indicating that these emerging economies are harnessing growth while containing overheads. Thiscontrasts widely with Japanese results which indicate the second lowest score of rising-profit companies(23%) after Spain (18%). China and India are also optimistic about their future revenues as nine out of tenIndian companies (89.5%) expect their revenues to rise in the coming year and 80.5% of Chinese companiesexpect the same. I expect my company revenues to rise in the next twelve months India SA Canada Mexico DE China Global Average USA Belgium Spain FR Australia ND UK Japan 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%Close behind these vibrant economies we find Germany, which has been benefiting from strong exportdemand. Although reports indicate that confidence has slipped slightly since February due to concerns overthe possible consequences of the earthquake in Japan and unrest in the Middle East, 11 the survey found that64% of companies recorded a rise in revenues and of 54% a rise in profits in the past year. Apart from11 th The Financial Times, German Business unruffled by the Japan quake, 25 March 2011
Belgium, which also reports profitability increases for 55% of companies, the rest of the Eurozone is lessprofitable, with Spain confirming its place as country with the lowest proportion of rising-profit companies(18%) and France (32% ) also straggling.In the UK and the USA, where theeconomic slowdown is provingharder to shake off than initiallyhoped, around a third of companiesreport their profits increased in thelast year. Over two fifths ofcompanies in both Australia andCanada also reported a rise inprofits Profits and revenues risen in the past year China India DE Belgium Canada Australia ND SA Global Average FR USA UK Mexico Spain Japan 0% 10% 20% 30% 40% 50% 60% 70% 80%
The Regus Business Optimism IndexIn every edition, the Regus Business tracker presents an updated Business Optimism Index. This index, ameasurement formed on an aggregate of positive forward-looking statements combining year-to-daterevenue and profit trends with views on the expected economic upturn in the coming six months, aims toprovide businesses with a single point of reference of the survey’s key findings. Its benchmark average wasset at 100 in the first publicly published edition of the Regus Business tracker in September 2009.It is immediately evident that overalloptimism has climbed up the scaleby 25 points and now, at 125, is atits peak since the first edition inOctober 2009, as well as beingsome 31 points up on its lowesttrough in April 2010. This positiveforward indicator provides a strongendorsement for the recoveringglobal economy and provides solidgrounds for businesses to enjoy arosier outlook. The Regus Business Optimism Index- Global Average 130 125 120 115 110 105 100 95 90 85 80 October 2009 April 2010 October 2010 April 2011
Unsurprisingly, countries that have achieved moresatisfying results in the past 12 moths are also morebullish about the future, with China (155), Belgium (139),Germany (135) and India (134) topping the scale foroptimism. At the other end of the scale we find Spain(92), the UK (108) and Australia (118), the latter latelyaffected by natural disaster and the slowing of the AsiaPacific region. The USA remains close to, if slightlybelow, the global average at 119 points, although theincrease in optimism in the region is 32 points up on sixmonths ago, confirming Grant Thornton reports whichshow that business leaders in the USA are moreoptimistic that recovery will take hold in the next sixmonths. 12Investing in growth, but cutting property costsThe latest Regus research uncovered an important strategic trend and identified that a positive proportion ofcompanies globally are keen to invest in growth, starting from increasing sales (41%) and marketing (36%)budgets, and even investing more in the creation and launch of new products (21%). More interesting still,however, is the evident intention of companies to hold true to the lesson learnt during the economicdownturn and avoid making property or premises investments that may become underused and expensivefixed costs.This downward pressure on property costs is consistent with findings from previous Regus global surveys,particularly a trend away from fixed premises working and towards more flexible working practices, alongwith an enthusiasm across the globe to employ more part-time employees and working mothers. If attitudestowards fixed premises working had remained as enthusiastic as in the past, then a growing global economycombined with depressed rentals and an increase in new staff employment would be expected to generate 13increased investment in traditional commercial property, not less.While in a few economies we find a very modest increase in premises is planned, a majority of companiesintend to downscale with the exception of Canada that plans to make no changes to premises budgets.Spain (-28%) and Japan (-21% ) are the most likely to reduce their premises costs shortly followed by theNetherlands (-14%) and the UK (-12%) where businesses are also being very careful about incurring fixedproperty costs. Even where they exist, plans to increase premises expenditure are much less pronounced12 Grant Thornton, IBR, 201113 Regus, Renewal and Recovery, October 2009; Regus, Taking the Pulse of the Global Recovery, April 2010; Regus, People Power,October 2010;
than plans to increase sales and marketing or product development budgets with a modest 9% of Chinesebusinesses the most likely to expand their premises.On the other hand sales budgets will be increased ranging from 64% of companies in Mexico to 21% in theUK. Marketing departments globally can expect more budget, but this is particularly the case if they are inChina or India (58%), South Africa or Mexico (44%). There is also investment in new products on the cardsfor many businesses, with China leading (44%), and Spain (6%t) and the UK (7%) stragglers in this field. Net increase of departmental spending Spain Japan ND UK USA Belgium Global Average Mexico Canada SA DE India Australia FR China -70% -50% -30% -10% 10% 30% 50% 70% Property/Business Premises Sales Marketing Product management and developmentOptimism and size correlationOverall fewer small businesses have experienced profit or revenue growth over the past twelve months withonly 46% of small companies realising an increase in revenues compared to 65% of large businesses.Similarly only 36% of small companies have experienced a profit increase compared to 61% of largebusinesses. This, however, has not dampened their enthusiasm as the proportion of companies expecting arise in revenues is equal (77%) in all three segments.
I expect my revenues to rise in the next 12 months- : SMALL MEDIUM LARGE 0-49 50-249 250+employees employees employees 77% 77% 77% Revenues and profits increase in the last year by size of business LARGE MEDIUM SMALL 0% 10% 20% 30% 40% 50% 60% 70% Revenues ProfitsSize does, however, seem to impact future budget allocation. More large businesses are inclined to reducetheir premises or property costs (-12%) indicating that unused or underused premises are regarded as aparticularly heavy burden by larger businesses whose size impacts their flexibility and agility in reacting tothe volatile recovering market. By reducing fixed premises costs, large businesses can achieve some portionof that agility which characterises smaller businesses. Small firms are also keen to reduce property costswith -4% wishing to break free of unnecessary property expense.
Impact of size of business on intention to cut or increase premises costs LARGE MEDIUM SMALL -14% -12% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8%In spite of less satisfying results than large businesses on the profit and revenue growth front, smallbusinesses are more keen to invest in sales and marketing than large businesses. 41% of small companiesplans to divert more budget to sales, and 39% to marketing, in the coming year compared to 36% and 23%of large businesses, once again giving proof of that entrepreneurial spirit that characterises smaller firms.Larger businesses (25%) are instead a little more likely than smaller firms (20%) to invest extra budget intoproduct management and development, highlighting that they are willing to take on long-term investments inequipment and R&D which smaller businesses may have difficulties in funding after a long downturn and inlight of the difficult business lending conditions experiences by this segment globally. 1414 The Euro Area Bank Lending Survey, January 2011, The European Central Bank; Trends in Lending, January 2011, Bank of England;The January 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices, January 2011, The Federal Reserve Board.
Country HighlightsCountry Profit Revenue Increased Increased Property cut Expect revenue rise rise sales budget marketing increase in the next budget 12 monthsUK 31% 38% 12% - 25% of 63% large businessesUSA 37% 44% 9% - 11% of large businessesFrance 32% 45% 14% of large businessesGermany 54% 64% 45%China 62% 72% 58% 58%India 60% 67% 61%Belgium 61% 55% 5%- 37% of large businessesNetherlands 52% 34% 34% 14% - 16% of small businessesSpain 18% 32% of large 75% and of small businessesSouth Africa 37% 50% 14% of large businessesJapan 23% 25% 21% - 32% of large businessesAustralia 46% 53% 32% 33%Canada 44% 53% 85%Mexico 26% 64% 44% 4%
ConclusionWith profits and revenues rising across the board, it is not surprising to find that global business optimismhas reached a peak since the bleak conditions of late 2009. As a result of this optimistic mind set, companiesare reconsidering their investment strategies and deciding to channel budget into different areas that theyjudge will help them catch the wave of economic recovery.In particular businesses are keen to invest more in sales and marketing departments, upon whose skills andactivities they will rely to take full advantage of economic recovery. Firms globally also revealed the intentionto invest in the development and management of new products revealing that where capital is available orloans are achievable, there is the expectation that benefits will be long-term.The notable exception to this enthusiasm for investment is the issue of premises and property costs. Asidefrom emerging economies, which are growing at breakneck sped and needing to accommodate new stafffaster than they ever imagined, the majority of world businesses is intent on reducing premises costsregarded as a fixed expense which is often unnecessary and underused.By cutting down on premises costs businesses can easily adapt to the changing economic landscape andmanage unexpected events such as temporary peaks in growth and sudden reduction of activity withoutwasting desk and office space as well as the lighting, heating and cooling associated with each deskposition. Fortunately savvy businesses have taken from the downturn an important lesson of agility and aremaking use of the more flexible workspace arrangements on the market.MethodologyOver 17,000 business respondents from the Regus global contacts database were interviewed duringFebruary 2011. The Regus global contacts database of over 1 million business-people worldwide, is highlyrepresentative of senior managers and owners in businesses across the globe. Respondents were askedabout their recent revenue and profit trends, along with their future views on a number of issues includingplans for investment in various departments. The survey was managed and administered by the independentorganisation, MarketingUK.
About RegusRegus is the world’s largest provider of workplace solutions, with products and services ranging from fullyequipped offices to professional meeting rooms, business lounges and the world’s largest work of videocommunication studios. Regus enables people to work their way, whether it’s from home, on the road or froman office. Customers such as Google, GlaxoSmithKline, and Nokia join hundreds of thousands of growingsmall and medium businesses that benefit from outsourcing their office and workplace needs to Regus,allowing them to focus on their core activities.Over 800,000 customers a day benefit from Regus facilities spread across a global footprint of 1,100locations in 500 cities and 86 countries, which allow individuals and companies to work wherever, howeverand whenever they want to. Regus was founded in Brussels, Belgium in 1989, is headquartered inLuxembourg and listed on the London Stock Exchange. For more information please visit: www.regus.comTo download a copy of the full report please visit www.regus.presscentre.com