Jeremy Kay, Partner at KPMG’s Operations Strategy Group comments: “Europe’s business and political leaders are only too aware of the challenges Europe as an economic and political union faces. By now everyone knows that the debt crisis in the peripheral economies of the Eurozone is serious and that staying in the Euro will require large real wage/price adjustments in these countries to restore competitiveness, on top of the austerity measures to correct the public finances.”
“There would also be severe penalties for a state which sought to solve its problems by leaving the single currency. The knock on effect for other economies of the Eurozone if one country left would be tremendous and results of the survey reflect the belief that sufficient political will and must exist to avoid this in order to prevent another financial crisis on the scale of Lehman.”
“In terms of Europe’s position, most business leaders recognize the reality of an ongoing shift in power to the developing and emerging markets, but this does not necessarily spell doom and gloom for Europe. The key word in the question is “relative”. Global growth is not a zero sum game and there is no reason why Europe should lose out absolutely, just because other countries have superior growth prospects. In fact, strong growth in the emerging markets should help Europe grow. It’s more than likely that Europe could find itself better off economically but with its relative world position still in decline.”
The KPMG Business Leaders Survey for Europe and the Middle East provides a fascinating insight into current key issues and hot topics for businesses across 15 sectors. Not surprisingly, the majority of respondents from all countries and across all sectors are worried about the recent rise in oil and commodity prices and 60 percent believe the price appreciation will continue to curtail the economic recovery.
Presented with a variety of key themes for their businesses “changing business operations to realize cost efficiencies” came out top of the list (51 percent), followed by “improving cash and working capital management” (42 percent). The third hot topic was “exploiting growth opportunities through successful transactions” (36 percent), a clear sign that mergers and acquisitions are back in fashion and on many businesses’ agendas.
Jeremy Kay comments: “The answers reflect very well where we are in the economic cycle. They show that many businesses still focus on getting the basics right. Growth forecasts are being slashed causing top-line opportunities to remain unpredictable, so executives latch on to the one thing they can control ― costs within their operations.”
“So far, many businesses have been successful at cutting capacity-related costs such as headcount, inventories, etc. But now they have to dig deeper and identify how to lock more competitive levels of efficiency into their cost bases so that when growth eventually returns, they generate more bang for the buck.”
“The renewed focus on transactional activity suggests that organic growth is still difficult to achieve and therefore businesses look for acquisitions in order to expand. Overall, there is volume in the M&A market currently – but not value. Once the final hints of negativity or fear of further surprises have receded, we might see a return to a sustained number of high value transactions and I expect to see that return in a matter of months, not years.”
“Preparing your organization for major business changes” (33 percent) and “addressing risk throughout the organization” (30 percent) were also high on businesses’ agenda.
The survey gives an in-depth breakdown of the results for each participating country and 15 different industry sectors thereby also providing insight into specific issues for each sector and each country.
“Exploiting growth opportunities through transactions”, for example, was particularly high on the agenda of UK business leaders (45 percent compared with 36 percent for all respondents) although the most “transaction-hungry” countries can be found in Eastern Europe and in the Middle East (Hungary 66 percent, Slovakia 54 percent, and Kuwait 72 percent).
Nine out of ten Polish respondents selected “changing business operations in order to realize cost efficiencies” as the most important issue to their business, almost twice as many as in most other countries, perhaps providing an insight into how and why Poland has weathered the recent recession relatively successfully.
A look at the sectors gives an insight into the specific challenges faced by individual industries.
For example, the overwhelming majority of manufactures surveyed believe that the growth agenda in the future will be characterized by a number of factors such as continued globalization and a need for a footprint in the emerging markets (90 percent). Respondents agreed that key characteristics for future manufacturing supply chains must be greater flexibility and the ability to stop and restart supply immediately.
The majority of executives in the media & telecoms sector (81percent) see an urgent need to rewrite business models in the sector and take them out of the analogue past in order to succeed in the digital world of the future.
The survey also provides a fascinating view into the changes needed in public sector. 92 percent of respondents for example foresee a much greater involvement of the private sector in public health care, both in terms of direct medical provision but also in terms outsourced back office functions.
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Katrin Boettger, Senior PR Manager
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KPMG press office: T +44 207 694 8773
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