Market Digest

BRIC nations also optimistic in poll of manufacturing/service sector providers

Manufacturing and service providers in the United States and the BRIC countries — Brazil, Russia, India and China — expressed greater confidence in a 2010 economic turnaround than those in other nations represented in KPMG International’s most recent Global Business Outlook Survey.

KPMG International surveyed 11,000 executives at 6,200 companies in 17 countries. Respondents in both the U.S. service and manufacturing sectors were most confident, outpacing all other economies, except Brazil. Executives indicated their positive outlook was based on an expectation of higher profits in the coming year.

Mark A. Goodburn, KPMG LLP Vice Chair and head of Advisory for the U.S. firm, noted growing optimism among U.S. executives based on the survey, and he recommended that organizations assess their readiness to seize market opportunities.

“Some analysts have noted that recent improvements in corporate earnings have resulted mainly from cost savings rather than revenue growth,” said Goodburn. “The challenge ahead for many companies is to ensure that all of the good work they have put into cost optimization will be sustainable as they shift back to a growth agenda.”

The survey found that U.S. manufacturing respondents expect:

• A rise in the U.S. manufacturing sector driven by growth in new orders,
• A steady increase in factory utilization,
• A return to higher research and development investments, and
• An upturn in employment to meet demonstrated demand.

Service-sector executives, meanwhile, said they anticipate:

• Business activity to rise,
• Employment to rise, but at a slower pace than demands,
• High daily costs to meet labor, outsourcing and raw material costs.

“This KPMG survey points to an overall positive outlook that could be an indication that the market has turned a corner, supporting previous KPMG data that pointed to recovery in the second half of next year,” said Goodburn. But he noted that companies should prepare for a changed operating environment that will include additional regulations, new market risks, the changing relationship with the customer and additional compliance requirements.

“Moving forward will not be an easy task, and companies that successfully navigate the recovery will be those that focus on sustainable operating improvements as well as managing the governance, risk and compliance issues they will face as growth takes hold,” Goodburn said.

The KPMG Business Outlook Survey uses an identical methodology across all nations covered, offering a unique perspective on future business conditions from Global manufacturers and service providers. The degree of market optimism or pessimism for each of the survey categories is indicated by a “net balance,” which can vary from negative 100 (pessimism) to positive 100 (optimism), with a value of zero signalling a neutral outlook. The net balance figure is calculated by deducting the percentage number of survey respondents expecting deterioration in a category — profit, for example — from the percentage of respondents expecting improvement.

Additional U.S. manufacturing findings:

• Growth in business activity earned a net balance of 54, compared with an overall global ranking of 42.9;
• Increased revenue had a net balance of 49.8, compared with a global average of 37.4;
• The net balance was 55.4 for new orders, compared to 44.1 globally;
• Profit was at a 46.4 net balance, against a 32.1 global measure;
• Employment was at a 20 net balance, compared with just 7.8 globally;
• Capacity utilization was rated a 29, versus 30.1 around the world;
• U.S. capital expenditure was 13.4, compared with 10.4 on the global market;
• Research and development was rated 16.4, against 17.1 globally;
• Input and output pricing were 29.1 and 27.6, respectively, compared with 20.3 and 8.6 globally;
• And inventories indicated a rise in the United States at a modest 5.7, versus a negative 4.8 globally.

Additional U.S. service-sector findings:

• Growth in business activity earned a net balance of 65.6, compared with an overall global ranking of 46.5;
• Increased revenue had a net balance of 64.7, compared with a global average of 40.7;
• The net balance was 62.8 for new business, compared to 42.7 globally;
• Profit was at a 58.7 net balance, against a 36.2 global measure;
• Employment was at a 28.4 net balance, compared with just 16.9 globally;
• U.S. capital expenditure was 18.3, compared with 10.9 on the global market;
• Outsourcing of business activities had a net balance of 12.8, versus 7.0 globally;
• Input and output pricing were 21.6 and 24.8, respectively, compared with 17.6 and 19.3 globally;
• Staff costs were 22 versus 19.3 globally
• Non-staff costs were rated 20.2, against an 11.4 rating globally.
• Pricing was rated 24.8, versus 10.6 globally.

Survey Methodology

This methodology allows harmonization of data and direct comparisons of business expectations across different countries. This provides a significant advantage for economic surveillance around the globe and for monitoring the evolution of the manufacturing and services economies by governments and the wider business community. The countries covered by the survey are the US, Japan, Germany, the UK, France, Italy, Spain, Ireland, Austria*, the Netherlands*, Greece*, the Czech Republic*, Poland*, Brazil, Russia, India and China. (* manufacturing only)

Source: KPMG LLP