United Kingdom
Reasons to be cheerful? - Malcolm Thixton
The Central South Report 2011, published this week, highlights reasons for optimism for those businesses that are prepared to adapt and broaden their horizons.
The fourth annual Report has a new concise format and fresh focus for 2011. It captures the top performing companies in key areas of operation and includes case studies from those that have performed strongly during the downturn. A snapshot of the region’s economic health, based on the consolidated accounts for the Top 150 companies (the Group), it shows that despite the impact of the recession, there are some businesses performing well and opportunities for future growth.
Last year’s report sounded a note of caution and rightly so, as the Group has navigated its way through the recession with operating profit up but turnover and employee numbers down.
However, there was some good news to be found in the results. There were still growth areas - niche providers within retail and technology saw a rise in turnover and a corresponding rise in staff numbers. Turnover increased within the manufacturing sector, which now contributes 50% of the total Group turnover. It was a good year for defence and military related suppliers with companies securing both UK and US government contracts on the back of product quality and price. However, following the UK Strategic Defence Review the outlook for this sector is far less certain.
Although funding lines have dried up for most, those who have them are using cash reserves to invest and have expanded rapidly, often overseas. The cost reduction and efficiency measures taken during the recession have allowed most companies to maintain their profitability, this might be a harder trick to pull off in 2011.
Significant economic and political uncertainty remains globally, and many businesses still face a challenging future, but the case studies within the report demonstrate how new opportunities can be found in the changing economic landscape. The watchword for all businesses appears to be innovation, with overall R&D spend up across the year and many businesses diversifying and finding new routes to market. The cost of investing in innovation during a recession is lower than in boom times: labour and new assets can be acquired more cheaply; firms’ internal resources can be redirected, and R&D budgets are normally the last be cut.
Companies are now thinking more broadly about how they use their and other people’s resources to innovate. Collaboration is key – collaborating with universities, suppliers and customers provides the opportunity to spread risk, combine resources and share costs.
As we start looking to the future things have definitely changed, we are seeing a fundamental shift of economic power. Although the financial crisis and subsequent recession were described in the UK as a global phenomenon they weren’t really, they mainly affected Europe and North America. Economies in some other parts of the world were scarcely inconvenienced.
With the UK and Europe becoming increasingly challenging business environments many companies are looking further afield to expand their businesses and meet growth forecasts. Despite a drop last year, overseas still represents more than 50% of the Group’s turnover and we would expect this to grow year on year.
Entering new markets is not necessarily an easy option or one to be taken lightly. Consistent quality and IP protection continue to be challenges, along with foreign ownership restrictions, trade barriers and corruption but none of the challenges are considered insurmountable according to our research.
Ambitious companies are looking to take advantage of the opportunities offered globally but management need to be willing to invest the time and money needed to expand overseas and seek advice when required.
With political unrest and natural disasters adding further uncertainty to the world economy, the trend for 2011 is likely to be the same as last year and next: ‘business will be harder, take longer and for less gain’.
We entered 2010 hoping for the best and not quite expecting the worst. We got through it and 2011 and beyond provides a real opportunity for us to adapt to the new world order and take advantage of what is available to us.
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