Economy looks bleak to CEOs of fasting growing companies
Optimism in the U.S. economy among CEOs of the nation's fastest-growing private companies has fallen nearly 59 percent in the last year to 29 percent, hitting its lowest point in the 16 years since PricewaterhouseCoopers launched its Trendsetter Barometer. Optimism in the global economy has also fallen but at a much slower pace, dropping to 55 percent in 4Q07 from 73 percent in 4Q06; while fully seven of ten surveyed CEOs responded they are uncertain or pessimistic about the prospects for the U.S. economy over the next 12 months. However, companies with international operations are forecasting greater growth and higher gross margins than their domestic-only counterparts.
In fact, over the next 12 months, CEOs of companies operating internationally forecast revenue growth of 19.3 percent (down 6 percent from the previous quarter) as compared to 13.4 percent (a 22 percent drop over the same period) for domestic-only companies. "While the softening U.S. economy affects all businesses, we've found that companies able to leverage alternate supplier and customer bases tend to weather economic slowdowns more successfully than those with limited options," says Ken Esch, partner with PricewaterhouseCoopers Private Company Services practice. "In fact, those companies operating on a global scale may even be positioned to grow profitably during a slowdown."
While growth projections have fallen for all Trendsetter companies (from 21.9 percent one year ago to 15.5 percent in 4Q07), 87 percent of Trendsetter CEOs expect positive revenue growth over the next 12 months, with 56 percent projecting double-digit growth and 31 percent forecasting single-digit growth. Approximately 12 percent of surveyed CEOs forecast no growth or negative results, and one percent declined to answer.
International marketers see greater options for growth
While the majority of surveyed CEOs are preparing for a potential economic downturn, those with international operations are reporting stronger projected performance and more opportunities for growth, including major capital investments, expansion to new markets and strategic alliances. Over the next 12 months, CEOs of these companies expect international sales to account for 17 percent of total sales, same as 4Q06. In 4Q07, the same percentage of domestic-only and international marketers (15 percent) saw net price increases. However, domestic-only companies reported lower (net flat) gross margins and net 27 percent reported cost increases. This is in stark contrast to their global counterparts -- net 16 percent reported increased gross margins while net 13 percent reported increased costs.
Plans for major capital investments and operations are also stronger for international businesses:
|Spending over the next 12 months||International||Domestic-only|
|Major Capital Investments||44%||25%|
|Expansion to New Markets Abroad||34%||4%|
|New Strategic Alliances||48%||25%|
"It's clear that companies involved in the international marketplace feel more opportunities will be available over the next 12 months -- they are still in build and growth mode," adds Esch. "By leveraging their involvement in several economies around the world, private companies can continue to drive their business strategy and maintain growth, while their domestic-only peers need to address how they can adapt to best position themselves in the softening market conditions."
Barriers to growth
In addition to potential economic hurdles, 64 percent of Trendsetter CEOs expressed concern over a lack of demand, up one percentage point from last quarter and 12 points from last year's 52 percent. The availability of qualified workers was the second highest barrier to growth for 45 percent of surveyed companies (down from 50 percent one year ago), while concerns over oil/energy prices (34 percent), legislation pressures (30 percent) and profitability (32 percent) have continued to increase over the past twelve months.
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