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IBR 2013 Global economy IBR 2013 Global economy Document Transcript

  • GRANT THORNTON INTERNATIONAL BUSINESS REPORTGlobal economy in 2013:uncertainty weighing on growth
  • Contents01 Foreword02 The past 12 months04 The year ahead06 Business confidence08 Business operations13 Investment15 Inflation18 Employment22 Access to finance24 Topical issues32 Methodology & IBR participants
  • Foreword ED NUSBAUM CHIEF EXECUTIVE OFFICER GRANT THORNTON INTERNATIONAL LTDWe have seen significant political economy has slipped back into With uncertainty prevailing, reasonchange over the course of 2012, with recession. might well tell business leaders to buildpresidential elections taking place in Emerging economies are growing cash levels and wait for a sustainedsome of the largest economies in the faster, but challenges remain. In recovery before investing. However weworld such as China, Egypt, France, China, the new leadership is also encourage our clients to listen toMexico, Russia and the United States. expected to focus on avoiding the their instinct: with interest rates low andThese leaders and their peers across middle income trap which will mean talent plentiful in mature economies, thisthe globe face a number of key sacrificing faster for more sustainable is the perfect time to invest in both theirchallenges in the face of continuing growth. Reforms to open up the people and their operations. Investingeconomic uncertainty. Uncertainty Indian economy to foreign direct now could help them to get ahead of thecontinues to hamper business growth investment have met with stiff competition when the global economyprospects. resistance and the high inflation rate is on a surer footing. Meanwhile, Agreement on a series of tax persists. Signs of reform in Russia are business leaders in emerging economiesrises in the United States pulled the tepid and the government budget should consider their internationaleconomy back from the brink of the remains highly reliant on the price of expansion strategy – picking up‘fiscal cliff’, but tough negotiations on oil and gas. Brazil has barely grown distressed assets at low cost in maturethe debt ceiling and spending cuts over the past 24 months, although economies could offer technology andremain. Deliberations also continue in interest and unemployment rates skills transfers, allowing them to movethe eurozone with the sovereign debt have dropped to record lows. The onto a higher growth plain by offeringcrisis still far from resolved and splits new administration in Mexico has higher value-add products and services.developing between northern and targeted higher growth and greater Conditions are tough, but bysouthern states, and between those security. Maritime disputes are applying both reason and instinct towithin and outside the single currency. threatening to upset relations in their decision making, dynamicPolitical deadlock and another round Southeast Asia, whilst the legacy of businesses can navigate through theseof elections in Japan is not helping the Arab Spring is still reverberating strong economic headwinds in 2013.recovery from the devastating tsunami across the Middle East and North The growth prospects of those thatand earthquake in 2011, and the Africa. do, look very healthy indeed. Grant Thornton IBR 1
  • The past 12 months 2 Mar 2012 25 of the 27 members 31 Mar 2012 Aung San Suu of the European Union Kyi elected to (excluding UK, Czech Parliament as 18 May 2012 Facebook IPO is hit Republic) sign a new Myanmar by technical problems “fiscal compact” opens up to and stock loses 25% 24 Jun 2012 Mohamed Morsi outside world over next six months of the Muslim 23 Jan 2012 EU places further Brotherhood sanctions on elected President trade with Iran of Egypt 5 May 2012 The Socialist 21 Feb 2012 Eurozone finance ministers reach Francois Hollande agreement on wins the French Kim Yong Kim Presidential 16 Apr 2012 2 Feb 2012 Elizabeth II second Greek celebrates chosen as election and 9 Jun 2012 bailout worth Spain requests loan 5 Mar 2011 Vladimir Putin 60 years as €130-billion elected for a President of promises a of up to €100bn World events head of the third presidential World Bank 75% top rate from European UK and the term of income tax Financial Stability Commonwealth Facility to recapitalise its banks 2010 IBR releases Women in senior Slowdown in management on High price of oil 16 May 2012 30 Jan 2012 8 Mar 2012 workplace stress, the rise in Europe driving business as businesses adjust as peers in consideration of to more realistic emerging markets alternative fuel performance goals fall away vehicles Business Single Businesses 9 May 2012 7 Feb 2012 3 Jan 2012 confidence on currency receives increasingly a knife edge welcome boost looking to heading into from eurozone overseas M&A 2012 business leaders Improving in hunt for growth business optimism 2 Apr 2012 in mature 0% economies offers hope for global recovery 19%2 Grant Thornton IBR
  • BAE-EADS merger 10 Oct 2012 cancelled with German, French and UK governments unable 18th Party Korean rap video 21 Dec 2012 15 Nov 2012 27 Jul 2012 2012 Olympic and to reach agreement Congress ends ‘Gangnam Style’ Paralympic on ownership with President-elect becomes first to Spain win the1 Jul 2012 Games Xi Jingping raised reach 1 billion views 2012 European 22 Aug 2012 opens in Russia joins World Trade to General on YouTube football London Organisation, 19 years Secretary and championships after talks began Commander-in-Chief 2 Jul 2012 Enrique Pena Nieto Barack Obama reelected as American 6 Nov 2012 2 Jan 2013 Apple 19 Sep 2012 wins the Mexico President of the United Taxpayer Relief launches Presidential election States and promises to work Act of 2012 the iPhone5 promising greater with Republicans to pull back signed in security and growth from the looming ‘fiscal cliff’ United States 2011 23 Nov 2012 26 Ju1 2012 6 Nov 2012 3 Sep 2012 Big sporting events Performance of EU business survey Four in ten key to attracting cleantech sector reveals majority businesses globally investment, say shining through bleak support for a more see revenue hit by emerging economies economic outlook diverse audit market eurozone crisis Strong support for greater 10 Dec 2012 8 Aug 2012 shareholder Red tape threatens to involvement in obstruct globalisation setting CEO opportunities for compensation dynamic companies 23 Oct 2012 Glimmer of hope for Support for fiscal measures 3 Jul 2012 global economy as grows amongst businesses business investment as confidence and picks up investment drop sharply 23% 8% Grant Thornton IBR 3
  • The year aheadThe global economic outlook remains highly Growth rates in emerging economies look veryuncertain. The eurozone sovereign debt crisis is healthy by comparison. China’s growth rate isperhaps the key challenge, and not just for business expected to pick up to 8.2% in 2013, from 7.8% inleaders in Europe. The European Union (EU) is 2012, even as the new leadership tries to moveChina’s largest trading partner, and China is the economic drivers away from exports and 1.9 2.0EU’s second largest trade partner after the United investment towards consumption. Growth in India CanadaStates. China remains the world’s largest exporter, slipped to a nine-year low in 2012 as persistent highbut the slowdown in Europe has weighed on inflation cut into consumer spending power andeconomic growth. political gridlock hampered meaningful economic Growth rates in and around Europe look set reforms. However there are signs of change, withto disappoint over the next 12 months. Having the lower house of Parliament recently voting tocontracted by 0.4% in 2012, the eurozone is allow FDI in the retail sector and growth isexpected to expand by just 0.2% in 2013. Despite expected to quicken to 6.0% in 2013. With unrestbeing outside of the single currency, the United in the Middle East persisting, growth of 3.8% in 2.2 2.1 United StatesKingdom is expected to post growth of just 1.1% Russia in 2013 will be underpinned by high oilin 2013, following a forecast contraction of 0.4% and gas prices.in 2012. The emerging economies of central and Growth prospects in Latin America are alsoeastern Europe are expected to grow faster in strong. The Brazilian economy has endured a2013 (2.6%) but their rates of expansion remain difficult past 24 months of little growth, but isdepressed by a slowdown in foreign direct forecast to expand by 4.0% in 2013. Mexico, whichinvestment (FDI) inflows. bounced back strongly from the recession north of Across the Atlantic, economic growth in the its border is expected to grow by 3.5% in 2013,United States remains weak and unemployment following expansion of 3.8% in 2012, although thehigh. Democrats and Republicans eventually ambitious reform agenda set out by the newreached a deal to avert the so-called fiscal cliff, but administration could see growth push up towardsthis focused only on the tax side of the equation. 5% by 2020. The region as a whole is forecast toTough negotiations on spending cuts and raising the grow at 3.9%. Forecast growth expansion rates indebt ceiling have been deferred, meaning more Southeast Asia (5.8%) and Sub-Saharan Africauncertainty for businesses in early 2013. The (5.7%) for 2013 are even more impressive, andeconomy is expected to expand by just 2.1% in underline the continuing development of emerging2013, marginally ahead of Canada (2.0%). Having economies.fallen back into recession in the last six months of2012, Japan’s economy is expected to expand byjust 1.2% in 2013.1 Financial Times (2012) – Peña Nieto sets out reform agenda via http://www.ft.com/cms/s/0/46d86a20-3e57-11e2-91cb-00144feabdc0.html4 Grant Thornton IBR
  • FIGURE 1: FORECAST ECONOMIC GROWTH RATES PERCENTAGE GROWTH IN GDP AT CONSTANT PRICES 4.0 4.1 Commonwealth 2.0 2.6 3.7 3.8 of Independent Central and States Russia Eastern Europe -0.4 1.1 United Kingdom 0.4 0.2 2.2 1.2 Eurozone Japan 5.3 3.6 Middle East and North Africa 7.8 8.2 China 4.9 6.03.8 3.5 IndiaMexico 5.0 5.7 5.4 5.8 Sub-Saharan ASEAN-5 Africa 2.2 3.0 New Zealand 1.5 4.0 Brazil 3.3 3.0 Australia 3.2 3.9 Latin America and the Caribbean 2012 2013 SOURCE: IMF 2012 Grant Thornton IBR 5
  • Business confidenceBusiness optimism for the year ahead has fluctuated FIGURE 2: MID-YEAR OPTIMISM DISSIPATES ACROSS THE GLOBE NET BUSINESS OPTIMISM (NEXT 12 MONTHS)with the strength of the recovery. At the back endof 2011, global confidence was at its lowest point 50 40since the global crisis began in 2009, and only 30remained neutral (net 0%) due to the strong 20optimism of Latin American businesses (net 61%). 10 Mature economies started to show signs of 0improvement in the first half of 2012 as the -10 -20European Central Bank (ECB) made some positive Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012statements about the level of support it would BRIC 34 41 41 29 39provide for the euro. Global optimism rose to net G7 -12 16 21 -4 -16 Global 0 19 23 8 419% in Q1-2012 and again to net 23% in Q2.However optimism fell to just net 8% in Q3 as SOURCE: GRANT THORNTON IBR 2012hopes for a swift end to the eurozone crisis fadedand commentators started to speculate about theimpact of the United States falling off the ‘fiscal AVERAGE G7 BUSINESS OPTIMISM, 2012cliff’. In Q4, optimism dipped even lower to justnet 4%. % 4 Business optimism amongst G7 businessesturned negative in Q3 (net -4%), indicating thatmore business leaders were pessimistic than wereoptimistic about the next 12 months. This trendcontinued in Q4 with net -16% optimistic for theyear ahead, below the level seen 12 monthspreviously. Although businesses in emerging economieshave remained more confident about the prospectsfor their economies over the next 12 months, theytoo have been impacted by the slowdown in the AVERAGE BRIC BUSINESS OPTIMISM, 2012global economy. The optimism of businesses in theBRIC economies climbed to net 41% in Q1 and % 34Q2 but then dropped back to net 29% in Q3.However, optimism bounced back to 39% in Q4.2 Net figures indicate the proportion of businesses indicating optimism (or an increase) less the proportion indicating pessimism (or a decrease)6 Grant Thornton IBR
  • FIGURE 3: ANNUAL BUSINESS OPTIMISM BY COUNTRYNET BUSINESS OPTIMISM (NEXT 12 MONTHS) Peru Philippines Chile United Arab Emirates India Brazil Georgia Mexico Botswana Canada South Africa Germany Turkey Armenia New Zealand Norway United States Australia China (mainland) Poland Denmark Argentina Vietnam Sweden Russia Ireland Switzerland Italy Thailand United Kingdom Malaysia Hong Kong Singapore Belgium Finland Greece Netherlands France Taiwan Spain Japan Very pessimistic Slightly pessimistic Slightly optimistic Very optimisticSOURCE: GRANT THORNTON IBR 2012 Grant Thornton IBR 7
  • Business operationsBusiness growth FIGURE 4: PERFORMANCE INDICATORS – REVENUE, PROFITS AND EXPORTS NET PERCENTAGE OF BUSINESSES GLOBALLY EXPECTING AN INCREASE (NEXT 12 MONTHS)Business leaders’ expectations for the performanceof their own operations have fluctuated along with 80wider economic expectations, indicating how global 70 60economic uncertainty is damaging growth 50prospects. From Q2-2012 to Q3, global business 40expectations for revenue, profit and export growth 30all slid by 5 percentage points. 20 10 Indeed business leaders showed less confidence 0in their business growth prospects across 2012, -10compared with 2011. Global expectations for 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Turnover 44 58 63 61 70 63 11 40 50 48increasing revenue and profitability over the next Exports 15 18 18 20 20 18 4 16 19 1812 months are both still positive, but remain below Profitability 31 42 45 46 52 41 -5 29 39 35levels seen before the global financial crisis of SOURCE: GRANT THORNTON IBR 20122008/9. The proportion of business leaders expecting toincrease revenues over the next 12 months is downin more than half of the economies we surveycompared with 2011. The most notable decline inrevenue confidence is observed in Hong Kong(down 35 percentage points), followed bySwitzerland (down 30), the Philippines, Italy (bothdown 21), France and Spain (both down 20). Themost optimistic business communities in terms ofgrowing revenues are Vietnam (net 92%), India (net82%), mainland China and Georgia (both at net78%). Expectations are far less buoyant in Europe. “The uncertainty in the global economy hasIts economies occupy the bottom eight places of dampened business growth prospects not justour 44 economies surveyed, although only in mature economies, but across the world.businesses in Greece are expecting to see revenuesdecline (net -3%) with those in Spain expecting However, the sheer size and internal demandrevenues to be flat. of economies such as Brazil, point to a much brighter 2013.” MADELEINE BLANKENSTEIN GRANT THORNTON BRAZIL8 Grant Thornton IBR
  • The proportion of businesses expecting to FIGURE 5: IN SEARCH OF PROFITABILITY – TOP AND BOTTOM 5 COUNTRIES NET PERCENTAGE OF BUSINESSES FORECASTING PROFIT GROWTH (NEXT 12 MONTHS)increase profitability over the next 12 months (net35%) is down on 2011 levels (net 39%). Businessesin very few countries are now more confident inboosting profits than they were 12 months ago.The main exceptions are Peru, where profitabilityexpectations have risen by 16 percentage pointsfrom 2011, and the United Arab Emirates (12 Vietnam: 87%percentage point rise). The economies whereprofitability expectations have fallen most sharply India: 69%include Argentina (down 25 percentage points) –where comprehensive foreign-exchange and importcontrols have been introduced to combat the tradedeficit – and three eurozone nations – theNetherlands (-21) Germany (-18) and Italy (-17). Perhaps unsurprisingly given respective growth China (mainland): 68% Peru: 68%rates, emerging economies fill the top five mostconfident about increasing profits over the next 12months, led by Vietnam (net 87%), India (net 69%)and mainland China (net 68%). Conversely, matureeconomies – including Greece (net -10%) and Japan(net -6%), occupy the bottom five places. Global: 35% Georgia: 67% Expectations for increasing exports fell slightlyto net 18% in 2012, similar to results observed in2008. Businesses in Turkey remain the most Poland: 1% Japan:optimistic for exports in 2012 (net 57%) followed -6%by the United Arab Emirates (net 37%) and India Spain: -3%(net 30%). Interestingly, businesses in Greece, Switzerland: -7% Greece:Ireland and Spain (all at net 28%) are also relatively -10%confident about increasing exports over the next 12months, perhaps reflecting their more expansive SOURCE: GRANT THORNTON IBR 2012focus with domestic demand for their products andservices depressed. PROPORTION OF G7 BUSINESSES EXPECTING A RISE IN PROFITS PROPORTION OF BRIC BUSINESSES EXPECTING A RISE IN PROFITS (NEXT 12 MONTHS) (NEXT 12 MONTHS) % % 27 61 Grant Thornton IBR 9
  • Demand FIGURE 6: SLOWDOWN IN GLOBAL TRADE PERCENTAGE OF BUSINESSES CITING A SHORTAGE OF ORDERS/REDUCED DEMAND TO CONSTRAINA fall in prospects for profits and revenues comes GROWTH (NEXT 12 MONTHS)on the back of more businesses citing a shortage oforders/reduced demand as a constraint in 2012(34%) compared with 2011 (31%). Perhapsunsurprisingly as unemployment persists andgovernments and consumers continue to tightenbelts, it is businesses in troubled Southern Europe – Southern Europe*: 49% Asia Pacific (excl. Japan):Italy, Greece and Spain – which are suffering most 39%from a lack of demand (49%, compared with 32%in 2011). However, this issue is also cited by 39%of businesses in the emerging and largely export-driven economies of Asia Pacific (excl, Japan),indicating how general economic uncertainty isaffecting businesses globally. Conversely, businessesin North (21%) and Latin America (19%) appearrelatively untroubled by levels of demand. ASEAN: 34% Businesses in three Asia Pacific economies – BRIC: 37%Japan (68%), Vietnam (60%) and Thailand (54%)– are most concerned with a lack of demand. Allthree are heavily dependent on exports and the Global: 34%contraction of European and North Americanmarkets is clearly impacting on business growthprospects. Three Southern European economieswhich are in the eye of the eurozone storm – Italy,Spain (both 50%) and Greece (48%) – are next. EU: 33% G7: 33%That the world’s two largest emerging economies –India (46%) and mainland China (42%) – also North America: 21%make the top ten, is a worrying sign for globaleconomic growth. Latin America: 19% * ITALY, GREECE AND SPAIN SOURCE: GRANT THORNTON IBR 2012 “Growth in Europe remains tied to the fate of the single currency and contracting markets are clearly not good for business. However we remain hopeful of a swift resolution that will help both France and the wider continent regain lost competitiveness.” JEAN-JACQUES PICHON GRANT THORNTON FRANCE10 Grant Thornton IBR
  • FIGURE 7: SQUEEZE ON ORDER BOOKS FIGURE 8: LEVELS OF BUREAUCRACY HOLDING BACK GROWTHPERCENTAGE OF BUSINESSES CITING A SHORTAGE OF ORDERS/REDUCED PERCENTAGE OF BUSINESSES CITING REGULATIONS/RED TAPE AS ADEMAND AS A GROWTH CONSTRAINT (NEXT 12 MONTHS) GROWTH CONSTRAINT (NEXT 12 MONTHS) Japan 68 Greece 58 Viet % nam Italy Th 54% 60% Po ail % lan an d5 Ita Be d ly lgi 54 3% 50 um % % 50 Spa Arg % in 5 enti 0% na 4 9% Greece 48 Brazil 49% % % Taiwan 47 India 49% 7% 6% na 4 a4 swa Indi 2% Bot % d4 46 % lan 43 ia % Po ss 42 Ru d an ina ail Ch ThSOURCE: GRANT THORNTON IBR 2012 SOURCE: GRANT THORNTON IBR 2012Bureaucracy PROPORTION OF BUSINESSES GLOBALLY CITING SHORTAGE OF ORDERS/Globally the impact of regulations and red tape has REDUCED DEMAND AS A GROWTH CONSTRAINT (NEXT 12 MONTHS)increased marginally as a constraint on business % 34expansion, from 32% in 2011 to 34% in 2012.Businesses in Latin America are the most concernedabout bureaucracy over the next 12 months with42% citing it as a constraint. However, it is in theeurozone where the effects of bureaucracy haverisen most over the past 12 months. Here 36% ofbusiness leaders cite it as a constraint on growthover the next 12 months, up from 29% in 2011. This is largely driven by a 21 percentage pointincrease in Italy to 54% where the technocraticgovernment of Mario Monti is trying to restore the PROPORTION OF BUSINESSES GLOBALLY CITING REGULATIONS/RED TAPE AS A GROWTH CONSTRAINT (NEXT 12 MONTHS)economy’s competitiveness. Italy sits just behindGreece (58%) and ahead of Poland (53%) and % 34Belgium (50%). In Latin America, businesses in bothArgentina and Brazil (both 49%) are also strugglingwith government interventions. As are businesses inIndia (49%), where corruption and politicaldeadlock over reforms aimed at opening up certainsectors to FDI are hindering growth. Grant Thornton IBR 11
  • Growth prospects for 2013 Businesses in the Latin American economies of recovering from the devastating earthquake and Brazil, Peru and Mexico as well as in South tsunami of 2011, complete the bottom left Africa appear well placed for growth moving quadrant. into 2013 with both strong order books and Businesses in the lower right quadrant are higher revenue expectations (the upper right confident about revenue growth prospects in quadrant). Growth prospects for other 2013 but less so about orders. They include emerging economies such as Georgia, those in some of the large, rapidly expanding Argentina, Chile and the Philippines also look emerging economies such as mainland China, fairly healthy. They are joined by businesses in India, Russia and Turkey which could have an mature economies such as Canada, Germany impact for longer term global economic growth. and the United States. Meanwhile those in the upper left hand By contrast, businesses in the eurozone quadrant seem to be suffering from increased economies of Belgium, France, Greece, Ireland, competition with strong order books not Italy and Spain expect another tough year in translating into higher revenues. This quadrant 2013. They are all forecasting low demand and includes economies at a variety of maturity low revenues. Poland, which is suffering from levels – Hong Kong, Finland, the Netherlands the regional slowdown, and Japan, which is still Singapore, Switzerland and the United Kingdom. FIGURE 9: EXPECTATIONS FOR ORDERS AGAINST REVENUE Lower revenues Higher revenues Stronger order books Stronger order books Peru Germany Canada Malaysia Philippines Brazil Finland Sweden South Africa Singapore US Mexico Netherlands Norway Argentina Switzerland Australia New Zealand UK Denmark Georgia Hong Kong Chile Global UAE Ireland Botswana Armenia France Russia Turkey Belgium China (mainland) Greece Poland Taiwan India Italy Spain Thailand Vietnam Japan Lower revenues Higher revenues Weaker order books Weaker order books SOURCE: GRANT THORNTON IBR 201212 Grant Thornton IBR
  • InvestmentFIGURE 10: 2013 INVESTMENT PLANSPERCENTAGE OF BUSINESSES EXPECTING TO INCREASE INVESTMENT (NEXT 12 MONTHS) Latin America BRIC APAC (excl. Japan) ASEAN Global North America G7 EU Plant & machinery 50 44 40 33 35 38 32 26 New building 28 22 19 22 18 22 17 10 R&D 35 44 45 26 23 13 16 18SOURCE: GRANT THORNTON IBR 2012Business investment Almost a third of G7 businesses (net 32%) areWith the global economic outlook so uncertain, planning to increase investment in plant andbusinesses are disappointingly, but understandably, machinery over the next 12 months, and net 17% incautious about investing in the future growth of new buildings but the divergence in priorities oftheir operations. In fact, business expectations for emerging and mature economy businesses isfuture investment have barely moved over the past highlighted by R&D plans. Net 44% of BRIC12 months. The proportion of businesses expecting businesses plan to increase R&D investment overto boost investment in new buildings or R&D are the next 12 months, compared with just 16% of G7unchanged from 2011, and have risen by just one businesses. Interestingly, mainland China leads thepercentage point for new plant and machinery. With R&D charge with net 55% of businesses planninglarge corporates already sitting on over US$4trillion to increase investment in R&D over the next 12of cash reserves, the concern is that a huge source of months, ahead of its fellow BRICs Brazil and Indiapotential private sector growth is lying dormant. (both 38%). Investment sentiment is more buoyant in thehigher growth emerging economies. In LatinAmerica, net 50% of businesses expect to increaseinvestment in plant and machinery over the next 12 NET PROPORTION OF BUSINESSES GLOBALLY PLANNING TOmonths, net 35% in R&D and net 28% in new INCREASE INVESTMENT IN R&D (NEXT 12 MONTHS)buildings. Businesses in Asia Pacific (excl. Japan) %are equally as bullish with net 45% planning to 23increase investment in R&D, net 40% in new plantand machinery and net 19% in new buildings.3 Hogan Lovells research into total cash on the balance sheets of the world’s top 500 non-financial companies:http://www.hoganlovellsevolution.com/ evolution-heatmaps-cash-on-balance-sheet Grant Thornton IBR 13
  • FIGURE 11: POOR CONNECTIVITY CONSTRAINING GROWTH IN EMERGING ECONOMIESPERCENTAGE OF BUSINESSES CITING INFRASTRUCTURE AS A CONSTRAINT ON GROWTHTRANSPORT INFORMATION AND COMMUNICATIONS TECHNOLOGY Vietnam 4 India 41% Indi Viet a3 nam 2% 9% Th Th 39% ail ail an an d d 38 36 % % Br Tu az rke il 2 y2 6% 9% Phil Bot ippi swa nes na 2 27% 2% Turkey 22 UAE 22% % % Mexico 19 Taiwan 21 % 19% % 21% sia 18 ana Rus es Botsw % pin 20 ilip % Ph an % 18 p Ja 19 ile ile Ch ChSOURCE: GRANT THORNTON IBR 2012Infrastructure Latin American businesses are particularlyEmerging economies are to some degree playing dissatisfied with the quality of local transportcatch up with investment as strong existing infrastructure. 26% of businesses in Brazil, whichinfrastructure in mature economies gives their will host both the next FIFA World Cup andbusinesses a huge advantage in terms of driving Summer Olympic Games, cite transportefficiencies in their operations. More than a fifth of infrastructure as a growth constraint, up marginallyBRIC businesses cite the poor quality of local from 25% in 2011. Elsewhere in Latin America,transport (21%) and information and businesses in Mexico (19%) and Chile (18%) alsocommunications technology (ICT, 21%) cite this factor.infrastructure as likely growth constraints in 2013.This compares to just 9% and 11% respectively inthe G7 economies. PROPORTION OF BRIC BUSINESSES CITING ICT INFRASTRUCTURE AS A CONSTRAINT (NEXT 12 MONTHS) Businesses in India and Vietnam are particularlyconcerned with the quality of local infrastucture. % 21Around two in five business leaders in eacheconomy cite transport and ICT infrastructure asan impediment to growing their operations over thenext 12 months. In both economies, this representsa large increase from 2011 suggesting connectivityissues are getting worse. Over a third of businessesin Thailand, and over a quarter in Turkey alsoexpress dissatisfaction with local infrastructure.14 Grant Thornton IBR
  • InflationPrices FIGURE 12: PRICE RISES SLOWING NET PERCENTAGE OF BUSINESSES EXPECTING TO RAISE SELLING PRICES (NEXT 12 MONTHS)Inflationary pressures have eased in 2012 comparedto 2011. However if prices rise quicker than salaries, 50real incomes decline thus reducing spending power 45 40and depriving economies of consumer demand. 35Inflation is not high on the agenda of most mature 30economy central banks, many of which have 25launched vast quantitative easing programmes 20 15which pump money into their economies in an 10effort to boost growth through raising liquidity. 5However some higher growth emerging economies 0such as Argentina, Brazil, India, Russia and Turkey 2007 2008 2009 2010 2011 2012 BRIC 43 27 21 26 52 38are grappling with much higher inflation rates, G7 22 27 9 1 19 16although the rate in China has continued to ease. Global 32 30 14 11 27 22 Business expectations for increasing selling SOURCE: GRANT THORNTON IBR 2012prices have fallen by three percentage pointsglobally from 2011. Only seven economies –including Peru (up 24 percentage points), United Some of the biggest drops in selling priceStates and India (both up four) – are more bullish expectations are apparent in Asia Pacific. Theabout increasing selling prices over the next 12 proportion of businesses in Southeast Asia planningmonths. Globally, net 22% of businesses expect to to increase selling prices declined from net 38% inincrease selling prices over the next 12 months, 2011 to net 23% in 2012. In mainland China thewith businesses in the BRIC economies (net 38%) proportion dropped from net 43% to net 29%far more likely to boost prices than peers in the and in Hong Kong from net 40% to net 16%.G7 (net 16%). PROPORTION OF BRIC BUSINESSES PLANNING REAL SALARY PROPORTION OF G7 BUSINESSES PLANNING REAL SALARY INCREASES (NEXT 12 MONTHS) INCREASES (NEXT 12 MONTHS) % % 17 12 Grant Thornton IBR 15
  • FIGURE 13: WHERE TO GO FOR A PAY RISE FIGURE 14: PRICE WAR – TOP AND BOTTOM 5 COUNTRIESNET PERCENTAGE OF BUSINESSES EXPECTING TO OFFER EMPLOYEES A NET PERCENTAGE OF BUSINESSES EXPECTING TO RAISE SELLING PRICES (NEXT 12 MONTHS)REAL PAY RISE (NEXT 12 MONTHS) Thailand 4 Argentina: 67% 2% India: 61% Per u2 Br 9% az il 2 Ind 9% ia 28 % Botswana: 58% Chil e2 8% South Africa: 51% Russia: 49% Turkey 26 % a 26% Global: South Afric 22% 23% any % G erm % 22 21 ia Ireland: ral nd st -2% ala Au Spain: Ze -8% Switzerland: w Ne -14% Greece: -16% Japan: -32%SOURCE: GRANT THORNTON IBR 2012 SOURCE: GRANT THORNTON IBR 2012 At the country level, businesses in Argentina (56%), especially in Southern Europe (35%), are(67%), India (61%), Botswana (58%), South Africa least likely to get a raise.(51%) and Russia (49%) are most likely to raise At the country level, employees in businessesprices over the next 12 months. At the other end of in Sweden (94%), South Africa (93%), Brazil andthe scale, Japan (-32%) – where deflation remains a Norway (both at 90%) look set to benefit frommajor concern despite interest rates being near zero higher wages over the next 12 months. Those in– expect selling prices to fall. Businesses in Greece Greece (3%), Ireland (17%) and Japan (25%) are(-16%), Switzerland (-14%), Spain (-8%) and unlikely to be as fortunate. In fact, 31% ofIreland (-2%) are also looking to reduce prices as businesses in Greece and 10% in Spain plan toEuropean markets continue to contract. reduce salaries over the next 12 months, which will further squeeze consumer demand.Salaries In terms of real salary increases (those above theWith consumer price inflationary pressures apparently rate of inflation), businesses in Latin Americaeasing, the good news for the global economy is that (25%) are expected to be the most generous, led bytwo-thirds of businesses (66%) are planning to offer Peru and Brazil (both 29%). Thailand tops theworkers a pay rise at least in line with inflation, well rankings with 42% of businesses planning to offerabove the 2010 level (51%) and up slightly from such increases. Conversely just 9% of EU2011 (64%). Employees in Latin America (86%), businesses expect to offer real salary increases overthe Nordic region (84%), North America (79%) the next 12 months, although this rises to 23% inand Southeast Asia (75%) appear the most likely to Germany which points towards a rebalancing ofget a pay rise in 2013. Workers in the eurozone competitiveness inside the single currency.16 Grant Thornton IBR
  • Inflation in 2012Wage-price spirals describe a vicious cycle where the two Those economies in the bottom right quadrant couldsides of the wage bargain (employers and employees) try find consumer spending falling in 2013 as salaries fail toto keep up with inflation to protect real incomes (profits keep pace with inflation. They include Argentina, Russiaand salaries). The graphic below shows where businesses and two Nordic nations – Finland and Sweden.are looking to boost both salaries and selling prices over In the bottom left quadrant, inflationary pressures arethe next 12 months, and therefore which economies are not expected to surface in 2013. The quadrant includesmost vulnerable to such cycles. Japan where prices are either flat or falling, and the Those economies in the upper right quadrant appear troubled eurozone economies of Greece, Ireland, Italy andmost in danger from rising inflation over the next 12 Spain which are going through an internal devaluation asmonths. These economies include the Latin American they look to restore lost competitiveness in relation to theeconomies of Brazil, Chile, Mexico and Peru. In Brazil, other members of the single currency. Business in otherinterest rates have fallen to record lows with the central EU countries outside the single currency – includingbank apparently tolerating inflation above 5% in a bid Denmark, Poland and the United Kingdom – also appearto stimulate the economy. India also appears in this to be looking to boost competitiveness.quadrant, suggesting the central bank will have to Finally those businesses in the upper right quadrantcontinue to closely monitor an inflation rate which appear set to help boost consumer demand by raisingcontinues to touch double figures. Both African salaries faster than selling prices. Whilst this may squeezeeconomies in our survey – Botswana and South Africa profits in economies such as Germany, Malaysia, Norway– also appear in this quadrant. and Switzerland, it should have some positive feedback effects on economic growth.FIGURE 15: EXPECTATIONS FOR SALARIES AGAINST SELLING PRICES Lower selling prices Higher selling prices Higher salaries Higher salaries Thailand Brazil Peru India Chile South Africa Turkey Germany Australia New Zealand Norway Mexico Switzerland Botswana Canada Malaysia Philippines Georgia Vietnam Global US UAE Argentina China (mainland) Belgium Sweden Russia Hong Kong Poland Finland Netherlands France Singapore Taiwan Japan Armenia Spain UK Denmark Ireland Italy Greece Lower selling prices Higher selling prices Lower salaries Lower salariesSOURCE: GRANT THORNTON IBR 2012 Grant Thornton IBR 17
  • EmploymentHiring FIGURE 16: HOW EMPLOYMENT EXPECTATIONS TRACK RECORDED CHANGES (2002-2012) NET PERCENTAGE OF BUSINESSES WHO HIRED/PLAN TO HIRE WORKERS (LAST/NEXT 12 MONTHS)The public sector in many mature economies has,and in some cases is continuing to, shed workers as 50governments try to tackle huge deficits and levels of 40 30public debt. Unfortunately, with the economic 20climate so uncertain, job creation in the private 10sector has largely been unable to keep up. In Greece 0and Spain the unemployment rate now tops 25%. -10 -20In France and Italy it is close to 11%. In the United 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Kingdom and the United States the proportion of Actual 11 8 26 31 44 41 21 -8 25 26 –the workforce looking for employment remains Expected – 14 25 34 35 45 33 -4 20 28 27stubbornly just below 8%. SOURCE: GRANT THORNTON IBR 2011 Unemployment rates in emerging economiesare generally lower, with Brazil, China, Russia andMexico all around the 5% mark (the exception isIndia where unemployment is running at 9.8%). PROPORTION OF BUSINESSES GLOBALLY WHICH HIRED WORKERSBusinesses in these economies are more concerned OVER PAST 12 MONTHSwith finding workers with the right skills to helpthem grow their businesses, potentially through % 26offering higher value-add products and services. The stickiness of the labour market globally isevidenced by the IBR figures. Net 26% ofbusinesses hired staff over the past 12 months, a riseof just one percentage point from the previous 12month period. Hiring was strongest in highergrowth emerging economies of Latin America (net38%), the BRIC economies (net 35%) and AsiaPacific (excl. Japan, net 32%), although net 33% ofbusinesses in North America also boosted PROPORTION OF BUSINESSES GLOBALLY PLANNING TO HIRE WORKERS OVER NEXT 12 MONTHSworkforce numbers over the past 12 months, aseven percentage point increase from 2011. % Hiring has been weakest in Europe – just net 2716% of EU businesses hired workers over the past12 months, rising to net 40% in Germany whichcontinues to outperform its eurozone partners. TheEU average is dragged down by Greece (net -33%),Spain (net -22%) and Ireland (net -3%) whereworkforces contracted on average in 2012.18 Grant Thornton IBR
  • FIGURE 17: HIRING PLANS – PAST AND FUTURENET PERCENTAGE OF BUSINESSES WHO HIRED/PLAN TO HIRE WORKERS (LAST/NEXT 12 MONTHS)PAST 12 MONTHS NEXT 12 MONTHS India 62% India 63% Geo Per rgia Pe u5 ru 59% Tu 2% 59 rke Tu % rke y4 Br y5 az 8% il 4 5% 6% Chil Chil e5 e4 1% 3% Georgia 4 Brazil 50% 0% 40% Germany Vietnam 4 4% 7% 43% da 3 ana ana 4% C % otsw % 35 B 42 a3 % AE ia en an 41 U m tsw Ar d an Bo ail ThSOURCE: GRANT THORNTON IBR 2012 Looking ahead, global economic uncertainty India (net 62%) tops the ranking of economiescontinues to depress business hiring plans. Net looking to expand their workforces in 2013,27% of businesses globally expect to increase followed by Georgia (net 59%) and Peru (netemployment in 2013, down one percentage point 58%). At least 50% of businesses in Turkey, Chilefrom 2011 and below the pre-crisis level of 33%. and Brazil also plan to hire more workers over theHigher growth rates in emerging economies are next 12 months. The highest ranked matureallowing businesses to consider expanding their economy is the United States (net 34%) in 15thworkforces to a much greater extent than peers in place, slightly behind mainland China and Mexicomature economies: net 41% of BRIC businesses are (both net 38%).planning to hire more workers over the next 12 In yet more evidence of how the sovereign debtmonths, with the Latin America average even crisis is damaging business and economic growthhigher at net 45%, and Asia Pacific (excl. Japan) not prospects, the bottom 11 places are taken byfar behind (38%). This compares to just net 24% of European countries. Indeed, the majority ofG7 businesses, and just net 5% in the eurozone. businesses in Greece (net -21%) Spain (net -16%),The North America average remains fairly buoyant Ireland (net -5%) and Italy (net -3%), Poland andby contrast at net 33%. Switzerland (both net -1%) plan to lose workers in 2013. Grant Thornton IBR 19
  • The relative decline over the past 12 months is FIGURE 18: CALLING FOR SKILLED WORKERS PERCENTAGE OF BUSINESSES CITING A LACK OF SKILLED WORKERS AS A CONSTRAINT ON GROWTH (NEXTalso most pronounced in European economies, 12 MONTHS)with 10% fewer businesses in the eurozoneplanning to hire workers in 2013 compared with12 months previously. Expectations in Belgium,France, Finland, Italy, the Netherlands and Spainhave all declined by at least 10 percentage points.However the biggest falls are observed in ASEAN: 42%Switzerland (down 23 percentage points),Argentina (down 21) and Vietnam (down 20). BRIC: 37%Finding skilled workersWith unemployment rates high, talent is largelyplentiful in mature economies. However a lackof skilled workers is the key issue constrainingbusiness growth in higher growth emerging Asia Pacific (excl. Japan):economies. 36% Nearly two in five businesses (37%) in the Latin America: 35%BRIC economies believe an inability to get the rightworkers will dampen growth in 2013. Although thisis a slight fall from 2011 (39%), it is well above the Global: 27%G7 business average (24%). Businesses in theemerging economies of Southeast Asia (42%), Asia NorthPacific (excl. Japan, 36%) and Latin America (35%) G7: 24% America: 16%are dealing with similar talent shortages. EU: 23% The rise of this issue has been notable inSoutheast Asia. The proportion of businesses citingtalent scarcity as a constraint on growth has risen Nordic: 16%by seven percentage points over the past 12 months,led by Singapore (up 17 percentage points), SOURCE: GRANT THORNTON IBR 2012Vietnam (up 10) and the Philippines (up nine).Elsewhere Chile and Germany (both up eight) are FIGURE 19: GLOBAL RACE FOR TALENTalso reporting skills shortages. PERCENTAGE OF BUSINESSES CITING A LACK OF SKILLED WORKERS AS A CONSTRAINT ON GROWTH (NEXT The top six economies reporting skills shortages 12 MONTHS)are all emerging economies, led by Botswana (56%) Botswana 56– which is struggling more than neighbour South India 53Africa (38%) on this measure – India (53%) andThailand (51%). Brazil (44%), where the Thailand 51unemployment stands at just 5.3%, is top in Latin Brazil 44America. Singapore is the top mature economy Vietnam 44(43%) and is joined in the top ten by Australia andNew Zealand (both 40%). Interestingly a lack of Malaysia 43skilled workers is far more of an issue in Canada, Singapore 43Japan (both 38%) and Germany (37%) than in Belgium 41France (26%), the United Kingdom (19%) or the Australia 40United States (14%). Almost a third of businessesin China (32%), where unemployment is running at New Zealand 40just 4.1%, cite it as a constraint. SOURCE: GRANT THORNTON IBR 201220 Grant Thornton IBR
  • Employment in 2013Without the right workers to drive a vision over the next 12 months, but are moreforward, an entrepreneur will not be able to confident about the talent available to them.achieve scalability in his or her businesses. The This quadrant includes Mexico and Peru frombest workers not only increase productivity, but Latin America, as well as Norway, Sweden,can also save a business time and money. the United Kingdom and the United States. The upper right quadrant includes some of The lower left quadrant is home to thosethe largest emerging economies in the world economies where businesses are happy withsuch as Brazil, China, India and Turkey, as well the talent on offer but they are simply notas Malaysia, Thailand and Vietnam from looking to hire as readily. Given the impact ofSoutheast Asia. Businesses in these economies austerity on growth rates and public sectorare planning to hire significantly in 2013 to employment, it is perhaps unsurprising to seedrive growth but are unsure that the talent this quadrant filled by European nationsavailable matches their ambitions. Businesses in including Greece, Spain, Ireland, Italy andmature economies such as Australia, Canada, France. Unfortunately these results suggestGermany, New Zealand and Singapore are in a that unemployment rates, which are running insimilar situation. double figures in each economy, are unlikely to Businesses in economies in the lower right come down significantly in 2013.quadrant are also looking to hire significantlyFIGURE 20: EXPECTATIONS FOR HIRING STAFF AGAINST AVAILABILITY OF SKILLED WORKERS Less hiring More hiring Lacking skilled workers Lacking skilled workers Botswana India Thailand Vietnam Singapore Brazil Malaysia Belgium Australia New Zealand Japan Russia Canada Germany South Africa Switzerland Hong Kong Turkey China (mainland) Georgia Netherlands Argentina UAE Chile France Global Taiwan Armenia Peru Philippines Norway Poland Mexico UK Finland Sweden Italy US Greece Spain Denmark Ireland Less hiring More hiring Sufficient skilled workers Sufficient skilled workersSOURCE: GRANT THORNTON IBR 2012 Grant Thornton IBR 21
  • Access to financeFunding constraints FIGURE 21: FUNDING CONSTRAINTS CONTINUE TO SLIDE PERCENTAGE OF BUSINESSES GLOBALLY CITING FINANCIAL CONSTRAINTS ON GROWTHFinance plays a key role in bringing the ambitiousgrowth plans of dynamic businesses to life. Central 30banks across the globe from the ECB to the United 28 26States Federal Reserve to the Bank of Japan have 24been required to pump liquidity into their economies 22to keep them afloat since the collapse of Lehman 20Brothers and the ensuing global financial crisis. 18 16 Having peaked in 2009-10, funding constraints 14have eased off for businesses over the past 24 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012months dropping back to pre-crisis levels. Cost of finance 20 18 17 21 23 27 28 28 23 22 Shortage of 24 22 20 22 23 26 27 26 23 22However, they have not fallen back to 2004-05 working capitallevels which might come as a relief to those not Shortage of long 22 19 18 19 21 21 27 25 23 22wanting a swift return to the easy credit conditions term financeof the last decade. SOURCE: GRANT THORNTON IBR 2012 In 2009, more than 26% of businesses globallycited a shortage of long term finance and ofworking capital and the cost of finance as exposure of many of the region’s banks to riskyconstraints on their growth prospects. Each of these sovereign debt. Around one in four businesses infactors fell between 2010 and 2011 and this trend the EU cite each of the financial constraints,has continued in 2012 with 22% of businesses boosted by the Southern Europe figure which risesglobally citing all three factors. to over one in three. Businesses in emerging economies are generally Greece tops the ranking for the economies mostmore constrained by financial issues compared with constrained by the cost of finance and a shortage ofpeers in mature economies. For example, more than working capital (both 65%). Businesses in Vietnama third of businesses in the BRIC economies cite the are the most concerned by a shortage of long-termcost of finance (34%), double the proportion in theG7 (17%) and the difference is similar for both theshortage of long-term finance and of working capital. PROPORTION OF BUSINESSES GLOBALLY CITING LENDERS ASA third of businesses in Asia Pacific (excl. Japan) cite SUPPORTIVEthe cost of finance and a shortage of working capital %(both 33%). In Latin America the key funding 75worry is a shortage of long-term finance (31%). Businesses in North America expect to belargely free from financial constraints over the next12 months. Just 10% cite the cost of finance whilst9% cite both shortages of long term finance andworking capital. However, the situation in Europeappears tighter, with concerns remaining over the22 Grant Thornton IBR
  • finance (57%). Other economies with high FIGURE 22: STRUGGLING FOR FUNDS AVERAGE PERCENTAGE OF BUSINESSES CITING THREE FINANCIAL CONSTRAINTS ON GROWTHproportions of businesses constrained by fundingissues include India, Thailand and Vietnam in Asia; Greece 59Ireland, Italy and Spain from the eurozone; Vietnam 59Argentina in Latin America and Georgia, Russia India 54and Turkey from wider Europe. Spain 45Lender support Italy 42In times of economic uncertainty, it is even more Argentina 40important that business leaders stay close to Thailand 37lenders, keeping them informed of how theirfunding needs change. Globally, the proportion of Turkey 35businesses citing lenders as supportive of their Russia 32business has increased marginally from 74% in Georgia 312011, to 75% this year. The proportion identifyinglenders as unsupportive remains unchanged at 7%. Ireland 31 The support of lenders in North America has SOURCE: GRANT THORNTON IBR 2012improved most significantly over the past 12months, rising from 83% in 2011 to 90% this year. FIGURE 23: FUNDING TO GROWThis is by far the highest level of lender support, PERCENTAGE OF BUSINESSES CITING LENDERS AS SUPPORTIVEwell ahead of Asia Pacific (75%), Latin America(69%) and the EU (64%). Indeed, 14% of EUbusinesses express dissatisfaction with the supportprovided by lenders. Businesses in the Philippines and the United North America: 90%States (both 91%) are the most satisfied with lender G7: 81%support, ahead of India, New Zealand (both 87%)and Japan (86%). Those most dissatisfied are splitbetween the eurozone – Greece (24%), France andItaly (both 21%) – and Latin America – Mexico(23%) and Argentina (21%). APAC: 75% Global: 75% The biggest falls in lender supportiveness areobserved in Singapore (down 15 percentage points),Switzerland (down 12) and Argentina (down 11).Conversely the biggest rises are seen in Hong Kong Latin America: 69%(up 17) and Turkey (up 12). ASEAN: 67% BRIC: 64% Nordic: 64% EU: 64% PROPORTION OF BUSINESSES GLOBALLY CITING LENDERS AS UNSUPPORTIVE % SOURCE: GRANT THORNTON IBR 2012 7 Grant Thornton IBR 23
  • Topical issues Women in business management positions globally, marginally up The past 12 months have seen women take the from 20% in 2011 but barely higher than the lead in some of the toughest economic and level reported in 2004 (19%). The results also political environments: Christine Lagarde found that the percentage of businesses that have became the first female to head the International no women in their senior management has fallen Monetary Fund, Angela Merkel, the German to 31% compared, to 38% in 2011. This is Chancellor, has emerged as the key figure in concerning, with a growing body of research solving the eurozone sovereign debt crisis and suggesting that such imbalance in the boardroom Maria das Gracas Foster has taken over at can be detrimental to business growth prospects4. Petrobras, becoming the first woman to run one Despite rising unemployment, the of the world’s top five oil companies. Women proportion of women in senior management in also head governments in countries such as Europe has continued to rise steadily from Argentina, Australia, Brazil and Thailand. 17% in 2004 to 20% in 2009 to 24% in 2012, In our annual look at the proportion of catching up with peers in emerging economies. women in senior management we found little Of course, getting more women into senior change from previous years. The IBR indicates management positions has been high on the that women currently hold 21% of senior European political agenda for quite some time. FIGURE 24: DECLINE TO MEDIOCRITY? PROPORTION OF WOMEN IN SENIOR MANAGEMENT 40 36 36 32 32 30 28 28 25 26 24 24 22 20 20 19 16 12 8 4 0 Asia Pacific ASEAN BRIC Latin America Europe 2009 2012 SOURCE: GRANT THORNTON IBR 20124 ‘Women in senior management: still not enough’ – Grant Thornton International via http://www.internationalbusinessreport.com/Reports/ 2012/women.asp24 Grant Thornton IBR
  • Governments have been vocal about addressing the FIGURE 25: RUSSIA LEADING THE WAY PERCENTAGE OF WOMEN IN SENIOR MANAGEMENT imbalance – with France, Italy, Spain and Norway even Russia 46 adopting quotas – and as a result business practices have Botswana 39 been under intense scrutiny. Thailand 39 However, we found that the reverse was true in emerging economies, where businesses have historically Philippines 39 employed more females in senior roles. Just over one in Georgia 38 five (22%) senior management positions in Latin America Italy 36 are held by women, down from 28% in 2009. Similar falls Hong Kong 33 were recorded in the Asia Pacific economies (25% in 2009, Turkey 31 down to 19% in 2012), South East Asia (36% in 2009, Poland 30 down to 32% in 2012) and the BRIC economies (30% in Malaysia 28 2009, down to 26% in 2012). New Zealand 28 Of course, there are a myriad of cultural, economic and South Africa 28 social barriers which prevent women from reaching the top Finland 27 jobs, but rapid urbanisation, which has accompanied rapid Armenia 27 economic growth in emerging economies, could help Taiwan 27 explain why the proportion of women in senior Vietnam 27 management is falling away. Since 1978, China has experienced the largest internal migration in human Peru 27 history, with nearly 160m people moving from the Brazil 27 countryside into cities5. The proportion of people living in China (mainland) 25 urban areas passed 50% in 2011, and is projected to hit Canada 25 55% by 2020. Similarly in Mexico, the proportion of the Australia 24 population living in urban areas is projected to rise from Spain 24 74% in 2000 to 80% by 20206. This is putting a huge strain France 24 on traditional family models in which strong support Singapore 23 networks allowed women to work whilst children were Sweden 23 looked after by relatives. Switzerland 22 Across the world, businesses in Russia employ the most Chile 21 women in senior management (46%), ahead of Botswana, Ireland 21 Thailand and the Philippines (all 39%), whilst Italy ranks Greece 21 highest in Europe (36%). Bottom of the table is Japan, where only 5% of senior management positions are filled by women, Belgium 21 below Germany (13%), India (14%) and Denmark (15%). United Kingdom 20 The biggest risers over the past 12 months include Argentina 20 Turkey (25% to 31%), and the United Arab Emirates Mexico 18 (8% to 15%), results that suggest that the wave of Netherlands 18 economic liberalisation in the Middle East as a result of United States 17 the Arab Spring could have boosted the chances of women United Arab Emirates 15 in the region reaching the top. Denmark 15 Of those businesses in which women occupy senior India 14 management positions, they are most likely to be head Germany 13 of human resources (21%), Chief Financial Officer or Japan 5 Corporate Controller both 13%). Just 9% of businesses are run by a woman. SOURCE: GRANT THORNTON IBR 20125 The Economist; from 25 February 2012 edition6 United Nations’ Population Division Grant Thornton IBR 25
  • Future of Europe Despite the ongoing problems, we found In 1951, in the aftermath of the Second World that businesses remain very supportive of the War, Belgium, France, Germany, Italy, single currency. Almost four in five (78%) Luxembourg and the Netherlands came businesses in the eurozone believe joining the together to found the European Union. Over euro has had a positive impact on their the ensuing years, the EU has grown both in business. The main positive impacts cited were membership, and in economic and political the boost to trade with other euro countries influence to become the largest single market in (23%), the elimination of exchange rate risk the world. On 1 Jan 1999 the single currency – (15%) and greater transparency on prices (12%). the euro – was launched and has now been However, it has not all been positive with adopted by 17 of the 27 EU member states7. businesses indicating that there have been some However, cracks started to appear in ‘the drawbacks associated with adopting the euro – European project’ in 2010, driven by the 57% cited a rise in costs and prices – but when sovereign debt crisis. In 2011, these cracks asked if they would like to see the euro survive, widened, clouding the future of the region in an overwhelming 92% agreed. Businesses in uncertainty, so we asked business leaders from Finland (90%) and Belgium (84%) are the most in and around Europe for their views on the positive about the impact of the single currency, single currency and future integration. with those in Italy (48%) the least. The two regional economic heavyweights, Germany (79%) and France (71%), remain solidly supportive. FIGURE 26: WOULD YOU LIKE TO SEE THE EURO SURVIVE? PERCENTAGE OF BUSINESSES, BY GROUP Yes, and continue to expand Yes, but with some Yes, but with no more countries No, it should break up countries dropping out joining in the near future Euro 31 24 37 5 EU only 15 28 36 13 Neighbours 35 25 30 6 SOURCE: GRANT THORNTON IBR 20127 ‘The future of Europe: clouded by uncertainty’ – Grant Thornton International via http://www.internationalbusinessreport.com/eports/2012/Future_of_ Europe.asp26 Grant Thornton IBR
  • Views on further European integration are FIGURE 27: POSITIVE IMPACT OF ENTRY TO EUROZONE PERCENTAGE OF BUSINESSESmore mixed. Fewer than one in three eurozonebusinesses indicated they would like to see thesingle currency expand (31%), althoughinterestingly, those in the troubled economiesof Greece (62%) and Spain (53%) were most Finland 90keen to welcome new entrants. Belg Meanwhile, almost a quarter of eurozone ium % Grbusinesses (24%) said they would like to see 84% ee cesome countries drop out of the single currency. 82 Sp ain %This was a popular option in the only 81 %remaining eurozone members with AAA-rated Gersovereign debt: Finland (50%), Germany (40%) man y7 9%and the Netherlands (24%). Outside the eurozone the picture was also eurozone 78%varied; the majority of business leaders inPoland (64%) and Denmark (62%) would like France 71 %their country to join the single currency. Butfew of their peers in the UK (12%) and Sweden 0% nd 7 % Irela 68(28%) agree. Outside the EU, 88% of ds % n rla 48businesses in Turkey would like their economy the ly Ne Itato integrate further with Europe, but just 32%would like to join the euro. SOURCE: GRANT THORNTON IBR 2012FIGURE 28: WOULD YOU LIKE YOUR COUNTRY TO ADOPT THE EURO?PERCENTAGE OF BUSINESSESPoland 64Denmark 62Turkey 32Sweden 28Armenia 28Georgia 18United Kingdom 12Switzerland 8SOURCE: GRANT THORNTON IBR 2012 Grant Thornton IBR 27
  • Stress The results indicated that reaching Levels of stress felt by business leaders showed performance targets is by far the biggest headache their lowest annual increase since 2005 when we for businesses; globally 30% of business leaders surveyed in early 2012. With economies cite it as the major cause of workplace stress, as depressed and the outlook for many still do 37 of the 40 economies surveyed on this topic. uncertain, this raised the question of whether The volume of communications, office politics business leaders are managing their goals to (both 11%) and work/life balance (9%) are much alleviate stress, adding a further brake to smaller contributors. growth, or whether they have learnt to better However, just 42% of business leaders take a manage the challenges they are facing. holiday to relieve stress, behind exercise/playing In 2010, net 45% of business leaders sports (62%) and entertainment in home (54%). reported an increase in stress levels over the past This is despite a clear correlation between the 12 months, but this fell to just 28% in 2011. number of holidays taken by business leaders And the pattern is consistent around the world; and their levels of stress. Those countries where net 21% of business leaders in North America businesses take the fewest holidays – such as cite an increase in stress in the last 12 months, Japan, mainland China and Thailand – reported compared with 35% in 2010. Asia Pacific is the the biggest increases in stress. Conversely, most stressed region with net 44% reporting an business leaders in the Netherlands, Russia and increase in stress over the past 12 months, but Denmark took the most days off in 2011 and this too is down from 58% in 2010. Even in reported the lowest increases in stress. troubled Europe the net increase in stress declined from 40% in 2010 to 22% this year. FIGURE 29: HOLIDAYS TAKEN VS LEVELS OF STRESS Less stressed More stressed Fewer holidays Fewer holidays Japan Botswana China (mainland) Thailand Mexico Taiwan Georgia Armenia Singapore Vietnam South Africa Philippines United States Chile Peru Australia Malaysia Hong Kong New Greece Brazil Zealand Global India Ireland Turkey Poland Argentina United Arab Emirates Switzerland United Kingdom Italy Spain Netherlands Canada Belgium Germany Sweden France Finland Denmark Russia Less stressed More stressed More holidays More holidays SOURCE: GRANT THORNTON IBR 201228 Grant Thornton IBR
  • Sport in Business Moreover, developed economies willAhead of the 2012 Olympic Games in London, normally have the venues, transport andwe asked businesses about the prospects of technology infrastructure already in place fortheir economies bidding for and holding major any major event. Capital investment to buildsporting events. Interestingly, businesses in new infrastructure is therefore much moreemerging economies most value the ability of limited in these economies, compared with thebig sporting events to attract investment to their level of investment required in emergingeconomies, whilst counterparts in developed economies such as China and Brazil.economies view them as less important. The results also indicate that businesses in In Latin America, almost three quarters those economies which have recently held, or(74%) of businesses believe major sporting are soon to hold, major sporting events areevents are important in attracting investment to more bullish about the investment they bringtheir economy and across the BRIC nations (the exception is mainland China, where theover half (54%) hold this view. By contrast, far legacy of the 2008 Olympic Games in Beijingfewer businesses in the EU (42%) and North remains unclear). Businesses in Brazil – which isAmerica (44%) believe in the ability of big gearing up to host the 2014 FIFA World Cupsporting events to attract investment, dropping and 2016 Olympic Games – show the greatestto just over one in three (36%) in the G7. faith in sport’s ability to deliver investment Holding a major sporting event gives an (83%). Businesses in Poland (82%) – host ofemerging economy a global shop window, the 2011 European Championships – and Southallowing it to present and market what it has to Africa (78%) – FIFA World Cup 2010 are alsooffer to a massive worldwide audience. For positive in this regard.more established economies, internationalsporting competitions are still a greatopportunity, but appear to be just one elementof a much bigger offensive to attract investment.FIGURE 30: HOW IMPORTANT DO YOU BELIEVE HOSTING MAJOR SPORTING EVENTS ARE IN TERMS OF ATTRACTING INVESTMENT TO YOUR ECONOMY?PERCENTAGE OF BUSINESSES ANSWERING 4 OR 5 (WHERE 5 IS VERY IMPORTANT AND 1 IS NOT AT ALL IMPORTANT)90 83 8280 78 7470 56 63 62 62 616050 4340 383020100 Brazil Poland South Africa New Zealand India Australia Russia UK Global China (mainland)FIFA World Cup 2014 European FIFA World Rugby World Commonwealth Olympic FIFA World Olympic – OlympicOlympic Games 2016 Championships Cup 2010 Cup 2011 Games 2010 Games 2000 Cup 2018 Games 2012 Games 2012 2008SOURCE: GRANT THORNTON IBR 2012 Grant Thornton IBR 29
  • Executive compensation Meanwhile, businesses around Europe, The salaries of executives at large corporates including those in Italy (90%), Switzerland around the world has been the subject of much (88%) and the United Kingdom (78%), are debate so we asked business leaders for their most likely to think that senior executives at views on compensation and shareholder action. large public companies are paid too much. They Two-thirds (67%) of business leaders are joined by peers from Australia (79%), India around the world say that shareholders should (78%) and Hong Kong (78%). have greater involvement in establishing More than three-quarters globally (77%) remuneration policy for senior executives at say that public companies should disclose the large public companies and 66% believe that remuneration policy and individual remuneration senior executives are paid too much. of executive and non-executive directors and Those businesses most keen to increase the 80% believe that the roles of CEO and role of shareholders in setting executive pay are Chairman of the Board should be held by found in emerging economies such as mainland different people to ensure greater oversight. A China (89%), Vietnam (88%), South Africa further 90% of business leaders think executive (85%) and Brazil (85%). remunerations at public companies should be closely linked to performance targets. FIGURE 31: EXECUTIVE COMPENSATION PERCENTAGE OF BUSINESSES WHO BELIEVE THAT AT LARGE PUBLIC COMPANIES SENIOR EXECUTIVES ARE PAID TOO MUCH SHAREHOLDERS SHOULD HAVE GREATER INVOLVEMENT IN ESTABLISHING REMUNERATION POLICY FOR SENIOR EXECUTIVES Italy 90% China (mai Viet Swi nam tzer So nland) 89 land 88% Au uth str Afr 88% Br ali ica Ind az a7 ia il 8 % 85 9% 78 4% % % Hon Tha gK ilan ong d8 4% 78% UK 78% Singapore 82% Brazil 76% 82% Argentina 6% 80% ey 7 ong Turk gK % Hon 74 0% xico y8 Me ke % r Tu % 74 78 ain ile Sp Ch SOURCE: GRANT THORNTON IBR 201230 Grant Thornton IBR
  • International expansion FIGURE 32: INTERNATIONAL INVESTMENT HOTSPOTS PERCENTAGE OF BUSINESSES CONSIDERING INTERNATIONAL EXPANSION IN REGIONS/AREASIn an ever more globalised world, dynamicbusinesses are increasingly looking to boost Top 5 emerging economies* 57their growth prospects by expanding Western Europe 38internationally. And globalisation is no longer a United States or Canada 33one-way street with business leaders in mature Other Asia 33economies looking to access low-cost inputssuch as labour and land, and vast consumer China 31markets in emerging economies. Increasingly Eastern Europe 26cash-rich businesses in emerging economies are India 24looking for expansion opportunities in maturemarkets, whether through opening premises or Other Latin America 22buying distressed assets, to access strategic Middle East 21markets, skills or technologies. These transfers Brazil 21can move businesses onto higher growth plains,allowing them to produce higher value-add Russia 18products and services. Mexico 15 Our survey results reveal that, globally, Australia or New Zealand 1457% of those business leaders consideringinternational expansion are looking at the five Other Africa 13biggest emerging economies – China, India, South Africa 12Russia, Brazil and Mexico – compared with *PERCENTAGE OF BUSINESSES CONSIDERING EXPANSION TO AT LEAST ONE OF BRAZIL, CHINA,38% looking at Western Europe and 33% at INDIA, MEXICO, RUSSIANorth America. SOURCE: GRANT THORNTON IBR 2012 This interest in higher growth economies isparticularly apparent amongst businesses inmature economies: 63% of Japanese businesses The key issue preventing businesses fromand 45% of those in the G7 are looking at expanding internationally is regulations andopportunities in China; 59% of German legislation, cited by 45% of businesses globally.businesses are looking at Russia and 57% of It was cited as the key challenge for businessesNorth American businesses are looking at Latin in North America (50%) and the EU (39%) asAmerica. However, businesses in Turkey well as in Latin America (50%) and the BRIC(59%), Russia (37%), India (33%) and China economies (35%). With the global economic(27%) are all looking at opportunities in recovery still tepid at best, lowering barriers toWestern Europe. And 33% of Latin American trade and foreign direct investment (FDI) couldbusinesses, rising to 58% in Mexico, are provide a boost to business growth prospectslooking at North America. and help the global economy get back on a surer footing. Grant Thornton IBR 31
  • Methodology & IBR participantsFIGURE 33: IBR PARTICIPANT ECONOMIES AND TOTAL NUMBER OF INTERVIEWS COMPLETED EU neighbours*: 1255 North America: 1205 European Union: 4173 Asia Pacific: 3150 Latin America: 1058 Africa and Middle East: 1020*Armenia, Georgia, Norway, Russia, Switzerland, TurkeyThe International Business Report (IBR) is a The data for this report are principally drawnquarterly survey of the views and expectations of from interviews conducted between December 2011both public and privately-held businesses. and September 2012. The Q4-2012 businessLaunched in 1992 in nine European countries, IBR optimism figures (p.6) come from interviewsnow interviews 3,200 businesses in 44 economies conducted in November/December 2012, but areevery quarter. The total number of individual not included in the totals above. The targetbusiness leaders interviewed per year is over 12,000. respondents are chief executive officers, chief Data collection is managed by Grant Thornton financial officers, managing directors and chairmen.International’s core research partner – Experian. Business leaders are drawn from all industry sectors.Questionnaires are translated into local languageswith each participating country having the option More informationto ask a small number of country specific questions • Website:in addition to the core questionnaire. The research www.internationalbusinessreport.comis carried out primarily by telephone. Responses are • Data visualisation tool:weighted by economy GDP figures. dataviztool.internationalbusinessreport.com • IBR project manager: Dominic King – dominic.h.king@uk.gt.com32 Grant Thornton IBR
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