Large US multinationals expect turnaround in 2003

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By: Wise Marketer Staff |

Posted on August 5, 2002

Large US multinationals expect turnaround in 2003

Senior executives in large multinational companies say the anticipated economic turnaround in the US is developing more slowly than expected despite initial signs of a recovery, according to PricewaterhouseCoopers' Management Barometer.

In interviews during May and June, the majority (54%) of the Management Barometer senior executives panel continued to see no change in the direction of the US economy from the previous quarter, while 37% said it is growing and only 9% said it is declining.

The respondents said they have further reduced the growth estimate for their business in 2002 to 6.0% (from 6.3%). They have also lowered their expectation for industry growth to 3.7% (from 3.9%).

Demand Demand remains a question mark, with 53% saying they are concerned that tepid markets could be a barrier to growth over the next 12 months (up from 45% in the previous quarter, though well below the 81% of a year ago).

"This has been a more profound recession than is generally acknowledged, and economic recovery seems long overdue," said Frank Brown, global leader for PricewaterhouseCoopers' business advisory service. "And although near-term prospects leave something to be desired, there are some important signs of improving conditions. But it is clear that top executives need contingency plans for both a rising and falling economy."

Improvement to come The executives suggested a healthier business environment is in the offing, reporting a number of improvements in two important areas:

  • Margins: Currently 37% say their gross margins are up while only 13% cite a decline. Costs remain relatively low, being down for 35% and up for 19%. And selling prices are up for 25%, and down for only 16%.
  • International markets: In the past quarter, 37% of respondents said revenues from foreign markets had increased, compared with 25% reporting a decline. Overall international sales are expected to contribute 25.8% of revenues over the next 12 months, up from 23.2% in the previous quarter. Among those marketing overseas, 56% are optimistic about prospects for the world economy over the next 12 months, while only 7% are pessimistic.

Growing optimism Looking ahead, several key indicators appear more favourable for the next 12 months:

  • Sustained optimism about the economy: Following an extended period in the doldrums, 69% have now been optimistic about prospects for the US economy for two quarters running. Currently only 2% are pessimistic, with 29% being "uncertain".
  • More bullish revenue targets: The executive panelists boosted their expected revenue growth for the next 12 months to 9.7% - a 24% increase from the previous quarter's estimate of 7.8%.
  • Greater capital investments: 43% expect to make major new investments over the next 12 months (up from 40% in the previous quarter). Planned spending averages 9.8% of revenues, up from 9.3%. Overall, this represents a 13% increase quarter-to-quarter. Favourite areas for increased investment included information technology (37%), new product and service introductions (36%) and marketing and sales promotion (30%).
  • More new hiring: Some 43% expect to add workers over the next 12 months (up from 40%), while only 13% plan to reduce staff (down from 16%). Average expected workforce growth now stands at 2.3%, up from 1.7% in the previous quarter. Those planning to add workers expect to achieve 11.5% revenue growth in 2002, compared with only 1.9% for those with no hiring planned. For the next 12 months, those with hiring plans expect consistent revenue growth of 11.9%, compared with 8.0% growth for those not hiring.

"It is significant that businesses that have reduced their capital spending and cut their workforce during the recession have higher targets for revenue growth, capital investment and hiring for the next 12 months," Brown said. "That tells us we may not see the start of a substantive recovery for another six months or so."

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