Winners Don't Play Dead Doing More with Less in an Uncertain Future

Winners don’t play dead Doing more with less in an uncertain future An Economist Intelligence Unit research programme

Sponsored by AlixPartners Winners don’t play dead Doing more with less in an uncertain future

Contents

Preface 2 Interviewees 3 Introduction 6 The motive and the means to invest for growth 7 Investing in innovation 9 Barriers to investment 16 Keeping focus and growing smartly 18 Next steps: What is needed? 19 Conclusion 21 Appendix: survey results 22

Preface

Winners don’t play dead: Doing more with less in an uncertain future explores how companies are reshaping their business to succeed in the challenging environment that has emerged from the great recession. It also looks at the factors holding back companies from making major capital investments. What is hindering them and what are they doing to help remove the constraints? The Economist Intelligence Unit conducted the survey and analysis and wrote the report. The ﬁ ndings and views expressed in this report do not necessarily reﬂ ect the views of the sponsor. The author was Shawn Young. Michael Singer edited the report and Mike Kenny was responsible for layout. Additional interviews were conducted by Andrew Cartwright and James Rubin. We would like to thank all of the executives who participated in the survey and interviews for their valuable time and insight.

January 2012

2 © Economist Intelligence Unit Limited 2012 Winners don’t play dead Doing more with less in an uncertain future

Interviewees

Chris Boyle, managing director, Black Diamond Ravi Pandit, chairman and group chief executive Capital Management offi cer, KPIT Cummins David Burns, general manager, IBM Global John Pearson, chief executive offi cer Europe, Technology Services DHL Express Sabri Challah, vice-chairman and senior partner, Charlie Peters, senior executive vice-president, Human Capital, Deloitte Emerson Electric Pete Cittadini, president and chief executive Gil Priver, executive vice-president, Retalix offi cer, Actuate Doug Shaw, chief executive offi cer, Harris Diamond, chief executive offi cer, Monotype Imaging Holdings Constituency Management Group, Mahmut Sinoplu, managing director, Weber Shandwick, Interpublic Group Sabanci Group Stuart Fenton, president, EMEA & APAC, Eivind Slaaen, senior vice-president, Hilti Insight Enterprises Patrick Spence, vice-president and manager of Ian Foottit, partner in fi nancial services, Deloitte global sales & regional marketing, Research In Vikram Gulati, chief executive offi cer, Motion (RIM) Happiest Minds B.G. Srinivas, senior vice-president and member of Buddy Gumina, senior partner and co-head of the board of directors, Infosys healthcare group, Apax Partners Thomas Waechter, president and chief executive, Chris Morgan, senior vice-president, graphics JDS Uniphase Corp. solutions business imaging & printing division, Matt Williams, partner and group planning Hewlett-Packard director, The Martin Agency Krishnakumar Natarajan, chief executive offi cer, MindTree

Executive summary

s developed economies shudder in response to Europe’s debt crisis, political unrest in the Middle AEast, a languishing US economy and an apparent dearth of effective economic leadership, corporate decision makers in the Organisation for Economic Co-Operation and Development (OECD) are braced for the possibility of a double-dip recession. In September 2011, the Economist Intelligence Unit conducted a global survey of 535 senior executives, sponsored by AlixPartners. More than 60% of respondents view default within the euro zone and a renewed global recession as likely or very likely. The respondents generally view a defl ationary cycle in developed markets as a real possibility, but this does not mean they are giving up on growth. The principal fi ndings of the survey and a series of interviews with senior experts are as follows: l Despite considerable gloom in parts of the global economy, corporate leaders are guardedly optimistic. A large proportion of respondents in OECD countries say they are confi dent that they can strike the delicate balance between cutting back in response to short-term setbacks and investing for long-term growth. They believe in their products and services, and many took steps and learned lessons during the recession that have left them, in some ways, stronger now than they were three years ago. They cut where they had to, but focused on their top priorities and most promising initiatives, often investing in one area while enduring painful cuts in another.

Who took the survey the respondents and 19% of the responses came from companies with annual revenue of US$10bn or more. The fi nancial services industry is the most strongly represented, with 16% saying it is their organisation’s The survey that underlies this report is based on “primary industry”. The survey also covers nearly answers from respondents, of which 49% were C-level all other industries, including professional services executives. The head offi ces of their organisations are (15%), manufacturing (9%) and information based in around 70 different nations. Around 33% of technology (IT) and communications (8%). them have company headquarters in North America; Many of the organisations in the survey are 27% in Western Europe; 17% in the Asia-Pacifi c region; multinational. Of the 83% of respondents that say they 11% in the Middle East; 6% in Latin America; 4% in do not have a head offi ce in the Asia-Pacifi c region, Africa; and 2% in Eastern Europe. Companies with around 60% have “signifi cant operations” in that annual revenue of US$500m or less compose 46% of region.

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l Many fi rms have amassed vast amounts of cash. Despite their fears for the global economy, companies with annual revenue in excess of US$500m say they expect generating revenue growth to become more important than retrenchment over the next few years. While it is expected that a certain amount of reserves will be set aside for short-term and emergency funding, many companies are setting priorities for spending. l Organisations outside of Western Europe are making it a priority to diversify their products and services. Investing in new technology, expanding into new markets and making acquisitions are also on the “To-Do” list, although there is a meaningful minority of 20%-25% of respondents that are determined to hold onto their cash for the time being. Those willing to spend are likely to invest in Internet-based software and services, business-process-management tools, mobile communications, data analytics and cloud computing. l When it comes to new markets, the Asia-Pacifi c region is the future, but other markets are still attractive. There is no question that most companies view emerging markets as the engine of future growth. Nearly 40% of our survey participants have been expanding in the Asia-Pacifi c region for at least the past three years, and roughly one-half expect to expand there over the next three years. Other emerging markets, in Latin America and the Middle East, will also attract a growing share of corporate investment, with around one-quarter of respondents expecting to invest in these regions within three years, although political upheaval in the Middle East may act as a deterrent in the short term. l Technology was critical in helping companies to operate on tighter budgets during the recession, and continues to be a tool for growth. Financial companies, in particular, cited effi ciency as one of the most important elements of their success, and they plan to build on that by using more Internet- based software, analytical tools, and mobile technology. At the same time, technologies from the consumer market are transforming the workplace, and companies that integrate phenomena like tablets, smartphones and social media are fi nding important new ways to attract customers and employees.

Introduction

or companies trying to plan for the next few years, the second half of 2011 bore a worrying Fresemblance to the end of 2008. Economic confi dence crumpled as a series of economic and political crises, improbable just months earlier, jolted the fi nancial world. The debt crisis in the euro zone escalated, sending economic-growth forecasts and capital markets tumbling. At the same time, fresh political upheaval swept the Middle East, economic policy in the US and the euro zone was hobbled by political dysfunction and Japan continued to grapple with the aftermath of a devastating earthquake and tsunami. The developed world confronted the harsh possibility of a double-dip recession, scarcely two years into the fragile recovery from the debacle of 2008 and 2009. The turmoil and uncertainty have forced businesses to evaluate continually the delicate balance between retrenchment and expansion. “Unfortunately, over the last year, year and a half, there has [always] been something or other on the horizon that has prompted people to look at what they are doing,” says Vikram Gulati, chief executive of Happiest Minds, an IT fi rm based in India. “If it was not the euro, it was the debt crisis in the US. If it was not that, it was the earthquake and tsunami in Japan. So, every three months there has been some political or social or economic crisis that has made people question what they are doing.” The positive result was that, by focusing on their ability to control spending and conserve cash, many companies survived the 2008 recession and the ensuing years in remarkably good shape. Many have improved their processes, streamlined their workforces and amassed enormous cash war chests. The executives in our survey voiced considerable confi dence about the things they can control: their products and services, technology, processes and spending. But they are very worried about the world outside their doors and the future looks worse in the developed markets that are home to most of our survey respondents. Sixty-three percent see a double-dip recession as likely or very likely and roughly the same percentage expect default within the euro zone. Nearly one-third see a defl ationary cycle in developed markets as likely and 38% give it 50-50 odds. By comparison, only 10% expect China’s economy to crash.

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The motive and the means to invest for growth

usinesses know they can’t shrink their way to growth. According to our survey, companies expect Brevenue growth to be a higher priority than cost cutting over the next 12-36 months, although it remains a very close contest. Survey respondents expect the Asia-Pacifi c region to be the focus of their expansion plans, acquisitions and revenue growth. They also expect companies headquartered in Asia- Pacifi c countries to be their main source of competition in the coming years. Despite the challenges they have faced in recent years, many companies are stronger now than they were at the start of the recession. And they have the cash to invest in future growth. US corporate profi tability is at a 40-year high and businesses are sitting on stunning sums of money. By the third quarter of 2011, US corporate cash balances reached $2.1trn, a $716bn increase since early 2009, according to the US Federal Reserve and Treasury Strategies, a Treasury consulting fi rm. Almost one-half of the companies in our survey say they have more cash now than they did three years ago. The decision to stockpile cash is all the more striking, given that low interest rates usually make holding cash unattractive and rates globally have been at historic lows in recent years. In addition to hoarding cash, companies have been bolstering their earnings with stock buybacks. By mid-November 2011, around US$450bn in buybacks had been authorized, the most since 2007. When made by fi nancially sound companies, these defensive moves have been harshly criticized for doing nothing to save jobs, create new products or position companies for future growth. And it is clear to many business leaders that being good at surviving an economic downturn does not necessarily mean that a company will thrive

Companies report financial strength despite the recession What are your organisation’s cash reserves compared to 3 years ago? (% respondents)

Signiﬁcantly higher (eg, over 10% increase) 27 Slightly higher (eg, around 5% increase) 22 Around the same 20 Slightly lower (eg, around 5% decrease) 11 Signiﬁcantly lower (eg, over 10% decrease) 16 Don’t know 4 Source: Economist Intelligence Unit survey, September 2011.

during a more propitious period. Surviving the recovery is likely to require investment. “That cash is going to be a very powerful weapon over the next few years,” says Buddy Gumina, co-head of the healthcare group at Apax Partners, a global private equity fi rm based in London. Indeed, some fi nancially strong companies are holding onto cash, not out of fear, but out of expectation that a weakening economy could create exceptionally favourable terms for expansions and acquisitions, says Chris Boyle, a managing director at Black Diamond Capital Management, an asset management and private equity fi rm. “We’ve tried to make sure we have dry powder,” he says. A question of timing Although they see the need, corporate offi cers seem less confi dent that the moment has come to shift priorities from cutting to investing. At the time of our survey, 47% say their emphasis remains on controlling costs, compared with 38% who put the priority on investing in the business. Fifteen percent see the two as equally important at the moment. Major capital undertakings are on the corporate horizon, but still seem daunting. Only 16% of respondents have fi rm plans for the next 12 months, while 65% expect to launch major capital projects, but will wait at least a year. Certainly not all the cash in corporate coffers is immediately available to spend. Holding onto cash and stock can be prudent when customers are reluctant, shareholders are risk averse and lenders are tight-fi sted. Companies with high debt levels and weak credit ratings need to be particularly conservative, given that tougher lending standards could make refi nancing diffi cult at best. Even in a vigorous recovery, companies would be likely to stick with many of the cost-conscious strategies they used to cope with the recession. In manufacturing, where demand has already begun to rebound in many areas, companies are fi nding that they need to add back far less than they cut, says Mr Boyle. “They have re-learned how to run their businesses,” he says, which means that margins are recovering quickly as leaner businesses meet growing demand. Many businesses, he says, would still rather be a little underprepared for a rally than overextended in a downturn. Having already cut the obvious fat from their businesses, companies still anticipate fi nding new ways to become more effi cient. Despite the uncertain economy—or perhaps because of it—many plan to keep looking for opportunities to outsource various administrative and technological functions.

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Investing in innovation

ost control is enormously important, but, at some point, companies that don’t directly invest in “[The past few Cexpanding their markets and developing innovative products and services will risk atrophy and lasting years] gave us the competitive disadvantage. opportunity to re- The companies in our survey are starting to sense a fairly urgent need to act. Despite their misgivings evaluate some of about the present, they rate investing for revenue growth as their top priority over the next 12-36 our businesses and months, with reducing costs ranked second. “We believe that standing still is going backward, so we’re make them more pushing forward and we need to be innovative all the time” says Gil Priver, an executive vice-president resilient and more at Retalix, an Israeli provider of transaction processing and supply-chain-management software for relevant.” retailers. “We need to be very clear about making sure we invest heavily in the areas that we believe in, Harris Diamond, Interpublic making sure that we know how to say no and not get derailed or de-focused.” Many companies have fought to push forward in crucial areas while facing searing retrenchment. “It’s nothing you’d ever recommend to anyone, but 2008 gave us the opportunity to re-evaluate some of our businesses and make them more resilient and more relevant,” says Harris Diamond, chief executive of the Constituency Management Group at Interpublic, a marketing and advertising group. Revenue in Mr Diamond’s unit contracted by 16% in 2009 and things were far worse in some of the unit’s divisions. Amid the inevitable cutbacks, Mr Diamond, who is also chief executive of the fi rm’s Weber Shandwick public-relations business, committed signifi cant cash to modernizing technology. While some functions were outsourced, the fi rm overhauled its infrastructure to fully integrate tablets, software applications (“apps”) and other portable technologies that have become central to a modern communications business. The payoff was strategic, as well as fi nancial. “We are much more digitally involved,” says Mr Diamond. That makes the company more attuned to its clients and audiences—and more attractive to talented workers, who increasingly judge prospective employers by how enthusiastically they embrace key technologies, he adds. How to spend it As businesses map out strategies for the next few years, they will have differing priorities, depending on whether the spending is domestic or foreign. A substantial minority remain determined not to spend at all. When assessing opportunities in their home region, 41% foresee diversifying products and services,

CASE STUDY 1 any progression. We feel that it would have were able to get it easily and frictionlessly Actuate: Investing in innovation been extremely, extremely dangerous if we download it, and get the real deal, so they took our eye off the ball or throttled back the can do some powerful stuff with freeware at lever in investing in the reality behind BIRT.” their enterprise.” So the engineers stayed, some Looking ahead, even if there is economic The fi nancial-sector debacle that began the sales agents left and the research and hardship, Mr Cittadini sees promise. US recession in 2008 posed a particularly development (R&D) budget remained fairly “Regardless of macro [changes], people gruesome threat to US software provider, steady at 16%-19% of revenue. At the same really don’t just stop doing things,” he notes. Actuate, a company with around 600 time, earnings per share continued to rise as “Typically, when we do the analysis of how employees that derives more than 60% of the company trimmed costs. well penetrated Actuate is with Citigroup, for its US$135m annual revenue from global The company changed auditors, saving example, versus the theoretical opportunity fi nancial-services clients, such as Citigroup. US$1.5m over three years. It renegotiated for Actuate at Citigroup, we’re not even The fi rm’s tale of survival refl ects several leases for a saving of US$20m over ten years. penetrated at 5%—this is just the tip of the of the key themes that other corporate And it turned to outside vendors for some iceberg” he observes. leaders have raised in discussions of how the administrative functions. The year before Although such immediate opportunities recession and its aftermath have affected the fi nancial crash, it had switched to a sales are the focus, the company is also expanding their businesses. pipeline management and communication overseas. It is expanding in Japan and even The fi rm made cuts where it needed to, sought effi ciencies, outsourced in a way that “It’s a poor existence to live your life and your emotions every day based helped it strategically as well as fi nancially, on speculation associated with macroeconomics.” and made sure to continue generating cash Pete Cittadini, Actuate fl ow and profi ts. At the same time, it held the line against cutting its vital engineering staff system from Salesforce.com that allowed hiring back sales people, including in Europe. and it continued to develop its key product. sales representatives to access information The company is expanding in China and That product, ActuateOne, is based around from their tablets, rather than having to log India, but emerging-markets growth will for on BIRT (Business Intelligence and Reporting onto a clunky home-offi ce system. “That some time be “exciting large percentages off Tools) which is an open-source software has saved us money over the years and has of small numbers,” according to Mr Cittadini. platform for developers. Having regained given us competitive advantage, because The fi rm wants to stay focused on its key almost all the revenue it lost in the recession, information is at people’s fi ngertips,” says Mr product and its clients, rather than worry too Actuate is now hiring sales people and eyeing Cittadini. much about external conditions. “It’s a poor expansion abroad. These seemingly mundane steps allowed existence to live your life and your emotions “There is a way to make a profi t, the company to focus on its core products, every day based on speculation associated regardless of what the macro-level climate which helped its customers customize and with macroeconomics,” notes Mr Cittadini. is, if indeed you’ve laid a good foundation maximize BIRT open-source software. That Having survived the bursting of the dot. to a good business,” says chief executive, focus was fortuitous in 2008 and 2009, since com bubble in 2001 and the recession of Pete Cittadini. “The only way you really stay the open-source software code is accessible 2009, “We’ve been through two turbulent relevant is to continue investment in moving to anyone for free over the Internet. down cycles within the confi nes of one the vision forward, regardless of how dire the “Throughout 2008 and 2009, we saw decade,” he notes. “If there is another down times get,” he says. “The strategy here, quite increasing numbers of downloads, and cycle in this new decade that was kicked off frankly, is that, if no one is buying anything, increasing numbers of developers using in 2011, I think we’re probably very prepared you don’t need salespeople, but you BIRT,” says Mr Cittadini. “Being free is good for it, since we’ve made a lot of moves certainly need engineers, because the lack of in a recession. You have lots of people that that show us that we can adequately run a innovation just completely puts a full stop on understand your product, because they business during down times.“

10 © Economist Intelligence Unit Limited 2012 Winners don’t play dead Doing more with less in an uncertain future

39% plan to invest in new information technology and 36% would like to spend on new equipment and “It is not about facilities. Around 30% cite expanding into new markets and making acquisitions. Holdouts determined to doing the old save their cash for now make up 24%. things more Companies that put a premium on diversifi cation of products and services expect this approach to effi ciently, it provide a measure of cushioning and bring new sources of revenue. Companies may invest in providing is about doing services that are in demand in different parts of the economic cycle, or they may look to invent entirely new things more new products. In manufacturing, some stronger companies are aggressively adding capacity to seize the effectively.” customers and markets of rivals who were weakened or destroyed by the recession, says Mr Boyle. “We are Vikram Gulati, Happiest not holding back,” he adds. Minds For US computer and printer maker, Hewlett-Packard, diversifi cation sometimes means boosting sales by applying existing know-how in new ways, says Chris Morgan, a senior vice-president in the company’s imaging and printing division. He cites the example of using the basic technology behind inkjet printing in pharmaceutical testing to accelerate drug discovery. Conventional drug-dosage tests can be streamlined by using inkjet technology instead of pipettes to test a broad range of dosages much faster and more accurately. “It’s the same set of printing technologies, but we are able to adapt it for a different use so that it has opened up a new market,” says Mr Morgan. Companies expect to invest in several major trends in technology. Chief among them are Internet- based software and services, which can dramatically reduce the costs of installing, maintaining and updating programmes that companies use in daily operations. Around one-third of companies plan to invest in data-analytics software, collaborative tools and mobile communications. Cloud computing is a priority for more than 40% and it is creating direct opportunities for some. A 2011 study of IT industry competitiveness by the Economist Intelligence Unit found cloud computing to be one of the leading investment opportunities for governments and private enterprises, as the technology invites improved telecommunications network-sharing between countries and regions.

Internet-based software and services top list of company IT investments What kinds of information technology will you be investing in at… Select all that apply. (% respondents) …domestic operations …overseas operations Internet-based software/services 59 43 Business-process-management tools [including customer relationship management (CRM), enterprise resource planning (ERP)] 56 33 Mobile communications 52 31 Data-analytics software 48 33 Cloud computing 40 26 Collaboration tools 38 28 Social media 34 24 Source: Economist Intelligence Unit survey, September 2011.

Social media has made its way onto a technological priority list dominated by more hard-nosed projects. Almost one-quarter of companies plan to invest in their social-media presence, as customers, prospective employees and other constituencies increasingly expect to interact with them in this way. “What I’m seeing happening more and more is people are investing in the consumerisation of IT,” says Mr Gulati of Happiest Minds. Over the past three or four years, consumer technologies, such as mobility, tablets, apps and social media have led to tremendous changes in enterprise technology. “So, it is not about doing the old things more efﬁ ciently, it is about doing new things more effectively,” he says. More than 25% of survey respondents cited innovative technology as an essential competitive tool and expect their IT departments to be far more than order-takers and mechanics. “The CIO of the future is the one that focuses the entire senior leadership on how to differentiate the business they’re in, rather than managing commodity IT,” says Stuart Fenton, chief executive of Insight Enterprises, an IT provider. While investing in technology is a priority in most industries, it is particularly urgent in healthcare, says Mr Gumina of Apax Partners. Although healthcare has traditionally been seen as non-cyclical, the recession demonstrated otherwise as people delayed proﬁ table elective procedures at the same time that governments and insurers cut payments and pressed for lower costs Seeking out better technology is one of the key steps the industry must take to adapt to the fact that healthcare isn’t recession-proof, says Mr Gumina. “IT has a massive role to play, and healthcare is woefully behind other sectors in technological investment,” he says. Many medical practices have yet to computerize patient records or optimize billing through software or outsourcing. Larger organizations, such as hospitals and insurers, haven’t taken full advantage of enterprise software and technologies for cutting the cost of managing chronic health problems, such as diabetes. Like many technology projects, these steps would result not only in lower costs, but also in better, more customized services for patients and competitive advantages for companies. As stronger healthcare companies look to deploy cash, horizontal acquisitions should remain a trend in the sector, as insurers buy clinics and hospitals buy or partner with medical practices, Mr Gumina adds. Acquisitions may seem less urgent overall according to the survey results, because they have already rebounded solidly in the past two years. Throughout the US recession and recovery, stronger companies mopped up fallen rivals and established companies absorbed upstarts that often had bleak prospects for loans or public offerings. By the last week of December 2011, global merger-and-acquisition (M&A) activity was US$2.26trn, compared with US$1.6trn for all of 2009, according to Bloomberg. As companies look abroad, it’s not surprising that expanding into new markets is the top priority, followed by diversifying products and services. Acquisitions are a higher priority than equipment and facilities, suggesting that buying whole businesses that already have operations overseas looks more appealing than building an operation or buying pieces of an operation. The percentage of respondents reluctant to spend abroad is only 20%.

12 © Economist Intelligence Unit Limited 2012 Winners don’t play dead Doing more with less in an uncertain future

Diversifying products and services a top priority for companies ‘My organisation’s current cash position will enable domestic operations to…’ Select all that apply. (% respondents)

Diversify our range of products/services 41 Invest in new information technology 39 Invest in new equipment/facilities 36 Expand into new markets 29 Make acquisitions 29 None of the above. We are holding onto our cash at the present time 24 Source: Economist Intelligence Unit survey, September 2011.

Where to spend it Companies that plan to spend in the foreseeable future are looking well beyond their own borders, as they have been for some years. With economic growth fl agging in developed nations and many corporate leaders bracing themselves for a double-dip recession, the appeal of emerging markets is obvious. Emerging markets account for around 85% of the world’s population, their public- and private-debt levels are manageable and their economies are growing. In fact, The Economist newspaper and WTO expect emerging markets to import more goods and services than those of the combined richer economies in 2012. Forecasters expect this growth to continue, despite the impact of further blows from tottering developed economies, at least assuming there isn’t an outright collapse of the euro zone. Our central forecast for 2012-16, which assumes the euro zone will muddle through, is for 6.3% annual average growth in countries outside the OECD, compared with just 1.9% for OECD countries. Our survey respondents clearly see the sun rising in the East. While acquisitions were concentrated in North America over the past three years, the expected focus shifts decisively to Asia-Pacifi c countries over the next one to three years. In many cases, the buyers will be companies that already have signifi cant market presence in the developing world. Around 40% of revenue for companies in the S&P 500 now comes from developing nations and 38% of our survey participants have been favouring the Asia-Pacifi c region for at least the past three years. Nearly one-half expect to expand there over the next three years. As they do, they expect to encounter increasingly effective competition from fi rms in those regions. Shipping and delivery service, Deutsche Post DHL, has built a brand around its global reach, and John Pearson, chief executive of DHL Express in Europe, calls Asia “The growth engine of the world economy.” The company is also expanding in Latin America. “The Middle East, owing to its political volatility, is less certain right now,” he says, although the company does have operations there. Hilti, a privately held multi-billion-dollar company, based in Liechtenstein, which makes power tools, is another company looking beyond its country’s borders for growth. The company has already recorded particularly strong growth in the Middle East and Latin America, where its distinctive red-coloured tools are dotted around construction sites and mining operations. It is offsetting sales declines stemming from areas like Spain’s ravaged housing market with growth in places like Brazil and Colombia, where

Middle East and Latin America gain on Asia-Pacific market growth In which geographical regions will the market expansions predominantly take place in the next 3 years? Select all that apply. (% respondents)

Asia-Pacific 48 Middle East 28 Latin America 26 North America 18 Europe 18 Other markets 18 All markets 5 Source: Economist Intelligence Unit survey, September 2011.

construction is booming. “We try to avoid countries where the engine is stopping,” says Eivind Slaaen, a senior vice-president at Hilti. Monotype Imaging Holding is a US company with around 250 employees that makes typefaces and related images for print, the Internet, Amazon.com’s Kindle and other e-books and displays on machines like automobile dashboards. It wants its fonts to look as good on a Korean computer monitor as they do on a German smartphone. The company, which had revenue of US$106.7m in 2010, has bought a small company in Hong Kong that works with a sister company in Mainland China. In the worst days of the recession in early 2009, Monotype Imaging opened an ofﬁ ce in South Korea to better serve customers like Samsung and LG, even though its revenue dropped by around 15% that year. And it has plans to expand into India. “That was done solely to make sure that not only do we have the best solutions for those Asian markets, but we also have feet on the street,” says chief executive, Doug Shaw. To date, Latin America and the Middle East have been a target for only around 10% of our survey participants. Financial-services companies appear to have been the most proactive in the Middle East so far, while professional-services companies have advanced in Latin America. Overall, around 20% of companies expect to be in the Middle East and Latin America within three years, although political unrest may dampen aspirations in the Middle East for the moment.

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CASE STUDY 2 back-up systems to its product line. It also that provides business services. This is what Emerson Electronics: Finding acquired Avocent Corp. for US$1.2bn, to senior executive vice-president, Charlie growth enhance its existing heating and cooling Peters, calls Emerson’s “enriched business products for industrial customers. model”. Under the model, the aim is to make Emerson is also encouraging growth by Emerson’s products more “intelligent”. For Emerson Electric is one of America’s unsung developing its overseas presence. In the example, Emerson adds sensors to some of corporate heroes. Based in St Louis, company’s most recent fi nancial year, sales its compressors for refrigeration systems for Missouri, it makes products that nobody outside the US accounted for almost 60% of supermarkets. The sensors read the contents really sees; its brand names can go unnoticed the company’s total receipts. And while sales and temperature of the cold cases, and the by the casual passer-by. Yet, over the in the US grew by a pallid 3% in the year, data they gather are then used to reduce years, it has produced a series of excellent sales in Latin America were up by 22%. In energy costs and improve maintenance. corporate performances. For 54 years in a anticipation of this new business, Emerson But the process does not end there. row, it has increased its dividend every year. had expanded its manufacturing plant and Emerson has also set up what it calls a Between 2005 and 2010 its sales grew at a operations facility in São Paulo, Brazil in “Human Centered Design Institute”. Mr compound annual rate of almost 6%, and its 2009. This included construction of a new Peters says the purpose of the institute, net earnings per share grew at well over 10%. 48,000-sq-ft manufacturing facility and which has a more or less virtual existence, is It lived through the recession with scarcely regional offi ce. “To make products that are not only reliable, a blip. The company survived the global Specifi c industries are also opportunities compatible and cost-effective, but that also fi nancial downturn, in part by restructuring for Emerson’s expansion plans. New bring about a signifi cant improvement in its workforce, reducing inventory levels and construction typically means new air- ease-of-use and workforce productivity.” managing its materials costs. conditioning and heating systems, two The institute studies the company’s “end- Emerson is currently in the process of product lines where Emerson has seen user communities”—healthcare units, for transforming itself from a 20th-century growth in the US and Europe. The US instance, where its mobile workstations company that made mainly electro- market may be particularly positive in 2012, are in use, or supermarkets where its mechanical products, to a 21st-century as forecasters suggest new residential control systems operate. It then examines company that provides support services construction may add one- or two-tenths of a how workers in these locations carry out for infrastructure, alternative energy and percentage point to GDP growth. their jobs, minute by minute. With that computer-data centres. For example, in The third dimension of Emerson’s growth information, it creates an interface with the 2010 Emerson made two acquisitions. The strategy is the most intriguing. At its centre fi nal consumer that is much easier to use. The company purchased the UK-based Chloride is the idea of moving from being a company interface then becomes part of the value that Group for US$1.5bn to add emergency power that makes things to becoming a company the product provides.

Barriers to investment

o one would accuse the corporate executives surveyed of taking too rosy a view of the world. A Nmajority of the survey respondents view renewed recession and euro-zone defaults as likely and nearly two-thirds say that a defl ationary spiral is at least possible in developed markets. These fears made some companies reluctant to invest in future growth. For those respondents that say their companies are uncertain or entirely unwilling to spend, the major stumbling blocks cited were weak consumer confi dence at home and geopolitical uncertainty abroad. Their pessimism about the euro zone is widely shared. The Economist Intelligence Unit lowered its 2012 economic forecast for the region after the European Central Bank failed to intervene aggressively enough to stem market volatility in early December 2011. Our analysts now expect the 17-member single-currency bloc to see its economy shrink by 1.2% in 2012. This assumes that a solution to the euro sovereign debt crisis is eventually found. The manufacturing sector is expected to be hurt most by this contraction. In fact, we continue to see a 40% probability of a break-up of the euro zone in the next two years. If a break-up happens, the chain reaction would be far worse than the 2008-09 recession. Fragile countries in the euro zone could see extremely high unemployment. Economic output among the euro-zone countries could lessen by as much as 25%. Access to capital would also be restricted, as banks in the region would undergo major restructuring, along with controls on capital lending and monetary exchanges. In response to a euro-zone breakup, economies in India, Indonesia and China would also suffer as exports to Western Europe would be stymied. Weak consumer confi dence is another barrier to investment. In October 2011 the Conference Board, a business-research group, published its authoritative index of US consumer confi dence. The results showed low levels of confi dence not seen since the pit of the recession. At the same time, British consumer confi dence fl irted with an all-time low. In this context, revolutions in the Middle East and political fumbling in the US and the euro zone become even more unnerving. Not surprisingly, only a small fraction of survey respondents would expect these developments—or lesser crises, such as social unrest or a spike in oil prices—to be good for business. More fi nancial leadership from government authorities would likely encourage companies to invest. Lower taxes and less red tape are perennials on corporate wish lists, but they seem even more attractive with developed economies walking a tightrope. Asked for the two most important things their government could do to help their business fulfi l its priorities, 46% of survey respondents thought investment incentives would be most helpful. Tax cuts came next, at 38%, with less regulation close behind, at 35%.

16 © Economist Intelligence Unit Limited 2012 Winners don’t play dead Doing more with less in an uncertain future

Not surprisingly, survey respondents in ﬁ nancial services, where regulatory scrutiny has been intense, were most eager for a regulatory breather. Reduced government involvement without a long-term ﬁ nancial recovery plan, however, is not enough for executives. In the near term, it seems unlikely that random government actions or regulatory policies will be major catalysts for investment or recovery. Interest rates are already scraping the bottom, the US is heading into a presidential election year in 2012 and joint government efforts to contain the eurozone crisis have not been reassuring so far. Businesses aren’t basing decisions on any possible upcoming government stimulus, says Black Diamond’s Mr Boyle. “Short-term tax incentives or government programmes just aren’t part of the boardroom talk,” he says, “It’s not even a topic of discussion.” It seems more likely that much-needed catalysts for growth and job creation will be a cumulative effect of organic economic developments and the actions of businesses themselves.

Keeping focus and growing smartly

elf-reliance may turn out to be a blessing for many companies that voiced striking confi dence Sin themselves. Forty-three percent say superior products and services are their key competitive advantages, followed by operational effi ciency. Companies see effi ciency as peaking in importance now and becoming slightly less of a competitive weapon over the next three years. This makes sense in light of the shorter-term focus on cost cutting that has carried through from the recession. Rather than devote too much energy to forecasting macroeconomic events they can’t control, many companies are doing their best to focus as tightly as possible on themselves, their markets and their customers. Staying relevant to customers is virtually a matter of life and death in tough economic times, executives say. “You need to be core to the business of the customer,” says Krishnakumar Natarajan, chief executive of Indian technology provider, MindTree. “During times of slowdown, clearly the peripheral services are the ones that fi rst tend to bear the brunt of the axing.” Most businesses are trying to become indispensible by anticipating customer needs and spotting superfl uous costs better than customers do themselves, Mr Natarajan adds. “Many times, it’s not that the customers come in with that opportunity, but that we are able to articulate it to them. Maybe if you take an automotive customer who is spending 0.6% on his warranty costs, and we are able to go to them and say: ‘We have this level of expertise to help you reduce it from 0.6% to 0.4%.’ ” Reaching that depth of understanding with customers may require that companies offer fewer services, to a higher standard. “Clearly, that need from the customer to be expertise-led certainly changed the way in which we looked at how we should be doing our business going forward,” says Mr Natarajan. “The obvious answer was, you can only be an expert if you’re in a few things—and be the expert in those.” As a consequence, the company has streamlined from seven divisions in “land-grab” mode, to two units, one of which serves a variety of industries and one of which focuses on helping other technology companies create products. Cutting staff numbers may not be the easy solution that it sometimes appears to be, according to several company leaders. In sophisticated service-oriented businesses, it can take years to rebuild the expertise and relationships that are damaged by staff cuts, and in some European countries, severance costs can be the equivalent of keeping the employee on the payroll for 12-18 months.

18 © Economist Intelligence Unit Limited 2012 Winners don’t play dead Doing more with less in an uncertain future

Next steps: What is needed?

ased on the survey and interviews conducted for this report, companies looking to do more with less Bin an uncertain future will need to consider taking some or all of the following steps: l Expanding into emerging markets. Even as developed-market economies struggle, emerging markets are likely to keep growing and keep nurturing their rising consumer economies. In this increasingly global marketplace, companies large and small should fi nd opportunities for both organic expansion and acquisitions. China is clearly one of the fi rst markets to consider, but looking at just one big market isn’t thinking globally. Survey respondents say they are considering at least one other destination. Smaller Asian countries, Latin America and the Middle East are worth considering for many businesses. l Making acquisitions. Many companies took advantage of the recession to make strategic acquisitions. For stronger companies, continued economic distress may present more such opportunities. And even companies experiencing diffi culties should consider growing their way out of them, if possible, through meticulously researched purchases. Depending on their customers and what their competitors are doing throughout their supply chain, vertical acquisitions may make as much sense as horizontal ones. In some cases, partnerships with companies already based in emerging markets may bring similar benefi ts. l Doing fewer things better. Many businesses emerged from the recession stronger because they focused intently on areas where they had or could create real competitive advantages. Some made hard choices to eliminate or de-emphasize areas where they were middling performers, so they could focus their resources most effectively. Survey respondents identifi ed streamlining business processes as well as maintaining operational effi ciency as their top competitive advantages. l Investing in promising new product lines. A successful new product not only boosts the bottom line, it can burnish a company’s reputation for innovation, attract new customers and strengthen ties with existing ones. Asia-Pacifi c and North American regions are expected to host the most companies eager to invest in these new products.

l Innovating with technology. Businesses have been quick to see the beneﬁ t of using technology to cut costs, and many understand that it can also become a core competitive advantage. However, companies can do more to think about and use technology strategically. And they need to embrace new and more open technologies that are percolating through to the business world from consumer markets. Integrating cloud computing and data analytics into business processes can create opportunities. Using new channels, such as social media, can make a company more relevant to new generations of customers, investors and employees. Companies should be aware, however, that investing in new technologies for the sake of improving margins assumes a measure of risk.

Prioritising between cost control and investing for growth is rarely easy and almost always a question of emphasis, not of choosing one or the other. Understanding the risks, but being willing to spend where it counts, is an overriding theme among corporate decision makers. It counts when it helps to create a company’s future by leading to new products, new markets, new customers and new revenue.

20 © Economist Intelligence Unit Limited 2012 Winners don’t play dead Doing more with less in an uncertain future

Conclusion

usiness leaders expect little relief from the uncertain and sometimes hostile economic conditions Bthat have existed for the past three years, but they seem optimistic that they have the drive and the competitive tools to prevail in diffi cult times. Businesses have made painful cuts and learned to do more with less, but they haven’t lost sight of the need to invest in future growth. Indeed, it is the highest priority. As companies plan for the coming years, executives responding to this survey say they continually bear in mind that austerity, while necessary in some areas, is not suffi cient if they are to get beyond survival and succeed. Many fi rms have already summoned the vision and the courage to become less defensive and more proactive about investing in future growth. Others may want to consider making this strategic shift in the near future.

Appendix: survey results Percentages may not add to 100% owing to rounding or the ability of respondents to choose multiple responses.

Outside of your home territory, where does your organisation Which of the following measures has your organisation taken have significant operations? Select all that apply. in the past 3 years? Select all that apply. (% respondents) (% respondents)

Asia-Pacific Reduced labour costs 48 46 Europe Consolidated facilities 45 38 North America Reduced capital expenditure 41 38 Middle East Increased IT spending 28 34 Latin America Increased outsourcing spending 25 30 Other emerging markets Increased labour costs 9 29 Reduced IT spending 28 Increased capital expenditure How has your organisation been affected in the period of 26 global economic uncertainty since 2008? Expanded facilities Rate on a scale of 1 to 5, where 1=Positively impacted and 23 5=Negatively impacted. Decreased outsourcing spending (% respondents) 18

1 - Positively impacted 5 2 Which of the following measures do you expect your 14 organisation to take in the next 12 months? 3 Select all that apply. 31 (% respondents) 4 35 Increased IT spending 5 - Negatively impacted 38 14 Reduced labour costs 37 Increased outsourcing spending 33 Consolidated facilities 33 Increased capital expenditure 29 Reduced capital expenditure 29 Expanded facilities 27 Increased labour costs 21 Reduced IT spending 20 Decreased outsourcing spending 16

22 © Economist Intelligence Unit Limited 2012 Winners don’t play dead Appendix Doing more with less in an uncertain future Survey results

Which of the following measures do you expect your In which geographical regions will the labour cost changes organisation to take in the next 3 years? predominantly take place in the next 12 months? Select all that apply. Select all that apply. (% respondents) (% respondents)

Increased IT spending Asia-Pacific 34 24 Increased capital expenditure Europe 33 23 Expanded facilities North America 30 23 Consolidated facilities Middle East 29 17 Increased labour costs Latin America 27 11 Increased outsourcing spending Other markets 26 6 Reduced labour costs All markets 26 14 Reduced capital expenditure 17 Decreased outsourcing spending 13 In which geographical regions will the labour cost changes Reduced IT spending predominantly take place in the next 3 years? 12 Select all that apply. (% respondents)

North America In which geographical regions did the labour cost changes 23 predominantly take place in the past 3 years? Asia-Pacific Select all that apply. 22 (% respondents) Europe 20 North America Middle East 30 15 Europe Latin America 26 11 Asia-Pacific Other markets 21 8 Middle East All markets 13 11 Latin America 10 Other markets 6 In which geographical regions did the IT cost changes All markets predominantly take place in the past 3 years? 12 Select all that apply. (% respondents)

North America 30 Europe 24 Asia-Pacific 15 Middle East 8 Latin America 6 Other markets 4 All markets 13

In which geographical regions will the IT cost changes In which geographical regions will the capital expenditure predominantly take place in the next 12 months? changes predominantly take place in the next 12 months? Select all that apply. Select all that apply. (% respondents) (% respondents)

North America North America 26 25 Europe Asia-Pacific 25 24 Asia-Pacific Europe 24 23 Middle East Middle East 13 14 Latin America Latin America 10 12 Other markets Other markets 5 7 All markets All markets 14 14

In which geographical regions will the IT cost changes In which geographical regions will the capital expenditure predominantly take place in the next 3 years? changes predominantly take place in the next 3 years? Select all that apply. Select all that apply. (% respondents) (% respondents)

North America Asia-Pacific 25 26 Europe North America 21 25 Asia-Pacific Europe 20 20 Middle East Middle East 13 15 Latin America Latin America 9 13 Other markets Other markets 7 7 All markets All markets 13 11

In which geographical regions did the capital expenditure In which geographical regions did the outsourcing changes changes predominantly take place in the past 3 years? predominantly take place in the past 3 years? Select all that apply. Select all that apply. (% respondents) (% respondents)

North America North America 28 26 Europe Europe 23 22 Asia-Pacific Asia-Pacific 20 16 Middle East Middle East 10 8 Latin America Latin America 9 8 Other markets Other markets 4 4 All markets All markets 10 10

24 © Economist Intelligence Unit Limited 2012 Winners don’t play dead Appendix Doing more with less in an uncertain future Survey results

In which geographical regions will the outsourcing changes In which geographical regions will the facilities changes predominantly take place in the next 12 months? predominantly take place in the next 12 months? Select all that apply. Select all that apply. (% respondents) (% respondents)

Europe Asia-Pacific 26 24 North America Europe 25 23 Asia-Pacific North America 24 23 Middle East Middle East 12 15 Latin America Latin America 9 11 Other markets Other markets 7 7 All markets All markets 13 10

In which geographical regions will the outsourcing changes In which geographical regions will the facilities changes predominantly take place in the next 3 years? predominantly take place in the next 3 years? Select all that apply. Select all that apply. (% respondents) (% respondents)

Europe Asia-Pacific 26 22 North America Europe 24 21 Asia-Pacific North America 24 21 Middle East Middle East 12 16 Latin America Latin America 10 12 Other markets Other markets 8 8 All markets All markets 11 11

In which geographical regions did the facilities changes predominantly take place in the past 3 years? Select all that apply. (% respondents)

North America 24 Europe 22 Asia-Pacific 16 Middle East 12 Latin America 8 Other markets 5 All markets 10

How would you rate your organisation’s overall experience What are your organisation’s cash reserves compared to with outsourcing (domestically and/or overseas) as result of 3 years ago? the period of global economic uncertainty since 2008? (% respondents) (% respondents) Significantly higher (eg, over 10% increase) Positive experience 27 32 Slightly higher (eg, around 5% increase) Neither positive nor negative experience 22 45 Around the same Negative experience 20 12 Slightly lower (eg, around 5% decrease) Don’t know 11 11 Significantly lower (eg, over 10% decrease) 16 Don’t know 4 Which of the following functions benefited most from your organisation’s use of outsourcing in the past 3 years? Select all that apply. (% respondents) ‘My organisation’s current cash position will enable domestic operations to…’ Select all that apply. IT services (% respondents) 60 Accounting Diversify our range of products/services 37 41 Logistics Invest in new information technology 36 39 Training and development Invest in new equipment/facilities 28 36 Manufacturing Expand into new markets 18 29 Research and development (R&D) Make acquisitions 18 29 Other None of the above. We are holding onto our cash at the present time 18 24

Consider how your company has performed in the period of ‘My organisation’s current cash position will enable overseas global economic uncertainty since 2008. Which strategies operations to…’ Select all that apply. adopted by your organisation have been most helpful in its (% respondents) performance? Rank the top three, where 1 represents the most effective measure. Expand into new markets 41 Streamlining business processes Diversify our range of products/services 1.8 29 Cutting labour costs Make acquisitions 1.8 26 Creating new products and/or services Invest in new equipment/facilities 2.0 25 Cutting capital expenditure Invest in new information technology 2.0 24 Finding new markets overseas None of the above. We are holding onto our cash at the present time 2.0 21 Shifting geography of production 2.1 Financial restructuring 2.2 Outsourcing 2.2 Other 1.9

26 © Economist Intelligence Unit Limited 2012 Winners don’t play dead Appendix Doing more with less in an uncertain future Survey results

In which geographical regions did the acquisitions In which geographical regions did the market expansions predominantly take place in the past 3 years? predominantly take place in the past 3 years? Select all that apply. Select all that apply. (% respondents) (% respondents)

North America Asia-Pacific 31 38 Asia-Pacific North America 23 20 Europe Europe 22 18 Latin America Middle East 10 17 Middle East Latin America 10 13 Other markets Other markets 7 9 All markets All markets 7 4

In which geographical regions will the acquisitions In which geographical regions will the market expansions predominantly take place in the next 12 months? predominantly take place in the next 12 months? Select all that apply. Select all that apply. (% respondents) (% respondents)

Asia-Pacific Asia-Pacific 32 49 North America Middle East 27 23 Europe Latin America 23 21 Latin America Europe 16 20 Middle East North America 10 17 Other markets Other markets 9 14 All markets All markets 5 4

In which geographical regions will the acquisitions In which geographical regions will the market expansions predominantly take place in the next 3 years? predominantly take place in the next 3 years? Select all that apply. Select all that apply. (% respondents) (% respondents)

Asia-Pacific Asia-Pacific 38 48 North America Middle East 21 28 Europe Latin America 21 26 Middle East North America 20 18 Latin America Europe 20 18 Other markets Other markets 13 18 All markets All markets 7 5

In which geographical regions did the diversification of In which geographical regions did the investments in products/services predominantly take place in the past 3 years? equipment/facilities predominantly take place in the past Select all that apply. 3 years? (% respondents) Select all that apply. (% respondents) Asia-Pacific 25 Asia-Pacific North America 27 21 North America Europe 26 19 Europe Middle East 23 11 Latin America Latin America 14 9 Middle East Other markets 14 7 Other markets All markets 5 10 All markets 5

In which geographical regions will the diversification of products/ services predominantly take place in the next In which geographical regions will the investments in 12 months? equipment/facilities predominantly take place in the next Select all that apply. 12 months? (% respondents) Select all that apply. (% respondents) Asia-Pacific 37 Asia-Pacific North America 38 25 North America Europe 22 25 Europe Middle East 22 15 Middle East Latin America 18 15 Latin America Other markets 16 10 Other markets All markets 7 10 All markets 6

In which geographical regions will the diversification of products/services predominantly take place in the next In which geographical regions will the investments in 3 years? equipment/facilities predominantly take place in the next Select all that apply. 3 years? (% respondents) Select all that apply. (% respondents) Asia-Pacific 35 Asia-Pacific North America 40 24 North America Europe 22 20 Europe Middle East 20 18 Middle East Latin America 19 17 Latin America Other markets 18 13 Other markets All markets 10 11 All markets 8

28 © Economist Intelligence Unit Limited 2012 Winners don’t play dead Appendix Doing more with less in an uncertain future Survey results

In which geographical regions did the new information What kinds of information technology will you be investing in technology investments predominantly take place in the at domestic operations? past 3 years? Select all that apply. Select all that apply. (% respondents) (% respondents) Internet-based software/services North America 59 26 Business-process-management tools [including customer relationship Europe management (CRM), enterprise resource planning (ERP)] 22 56 Asia-Pacific Mobile communications 19 52 Middle East Data-analytics software 13 48 Latin America Cloud computing 10 40 Other markets Collaboration tools 5 38 All markets Social media 10 34 None of the above 2 Don’t know In which geographical regions will the new information 4 technology investments predominantly take place in the next 12 months? Select all that apply. What kinds of information technology will you be investing in (% respondents) at overseas operations? Select all that apply. Asia-Pacific (% respondents) 29 North America Internet-based software/services 24 43 Europe Data-analytics software 22 33 Middle East Business-process-management tools [including customer relationship 18 management (CRM), enterprise resource planning (ERP)] Latin America 33 16 Mobile communications Other markets 31 7 Collaboration tools All markets 28 10 Cloud computing 26 Social media 24 In which geographical regions will the new information None of the above technology investments predominantly take place in the 2 next 3 years? Don't know Select all that apply. 4 (% respondents)

Asia-Pacific 30 When do you expect to begin investing in major capital North America projects again? 22 (% respondents) Middle East 18 In less than 12 months Europe 16 18 Between 12 and 36 months Latin America 35 14 Between 36 and 60 months Other markets 24 10 In more than five years All markets 7 11 We do not expect to begin increasing capital investment any time soon 19

What are the two most significant factors holding back your 3 What can your country’s government do that would most help to 5-year investment plans in overases operations? your organisation meet its business priorities? Select all that apply. Select up to two. (% respondents) (% respondents)

Geopolitical uncertainty Increase investment incentives 35 46 Consumer conﬁdence Reduce taxes 28 38 Tax/regulation uncertainty Cut regulation 19 35 Shortage of funds Reduce red tape 19 32 Exchange rates Cut interest rates 17 10 Shortage of skilled labour Raise import tariffs 14 3 Long-term interest rates Stockpile commodities 11 1 Commodity prices Other 11 8 Environmental issues 8 Transport costs 8 Which region do you think will be the most important source None of the above of economic growth in the next 12 months? 8 (% respondents) Don’t know 4 Asia-Pacific 58 North America 14 What are the two most significant factors holding back your Latin America 3 to 5-year investment plans in domestic operations? 11 Select all that apply. Middle East (% respondents) 7 Europe Consumer conﬁdence 4 42 Other markets Geopolitical uncertainty 5 27 All markets Shortage of funds 1 25 Tax/regulation uncertainty 24 Shortage of skilled labour Which region do you think will be the most important source 19 of economic growth in the next 3 years? Long-term interest rates (% respondents) 18 Exchange rates Asia-Pacific 13 52 Commodity prices Latin America 13 13 Environmental issues North America 8 13 Transport costs Middle East 5 8 None of the above Europe 9 4 Don’t know Other markets 3 8 All markets 2

30 © Economist Intelligence Unit Limited 2012 Winners don’t play dead Appendix Doing more with less in an uncertain future Survey results

Where do you think your organisation’s future investments What are your organisation’s overall top three business are most likely to take place? priorities for the next 12 months? Select and rank the top Select all that apply. three, where 1 represents the top business priority. (% respondents) Increasing revenue 1.5 Asia-Pacific Reducing costs 1.8 52 North America Finding and retaining customers 2.0 28 Securing financial stability 2.1 Latin America Entering new markets 2.2 23 Middle East Maximising employee productivity 2.3 23 Creating new products and services 2.3 Europe Streamlining business processes 2.6 23 Other markets Other 2.3 12 All markets 4 What are your organisation’s overall top three business priorities for the next 3 years? Select and rank the top three, where 1 represents the top business priority. What geographical regions do you see your main competition coming from in the next 12 months? Increasing revenue 1.5 Select all that apply. Finding and retaining customers 1.9 (% respondents) Reducing costs 2.0

Asia-Pacific Securing ﬁnancial stability 2.1 48 Entering new markets 2.1 North America Creating new products and services 2.2 33 Europe Maximising employee productivity 2.3 29 Streamlining business processes 2.5 Middle East Other 2.0 12 Latin America 10 Other markets 3 What do you see as your organisation’s top 2 competitive advantages in the next 12 months? Select two. (% respondents) What geographical regions do you see your main competition coming from in the next 3 years? Product/service superiority Select all that apply. 43 (% respondents) Operational efficiency 36 Asia-Pacific Innovative technology 57 26 North America Agility 31 23 Europe Talent management 28 18 Middle East Geographic spread 16 17 Latin America Use of IT 12 8 Other markets Other 4 2

What do you see as your organisation’s top 2 competitive Does your IT department contribute to the success of your advantages in the next 3 years? organisation's business priorities when it comes to reducing Select two. business costs, entering new markets, or managing risks? (% respondents) (% respondents)

Product/service superiority 44 Yes 54 Operational efficiency No 34 29 Innovative technology Don’t know 12 26 Talent management 24 Geographic spread 23 Agility 20 Use of IT 8 Other 3

Does your IT department play a role in shaping your organisation's competitive advantages? (% respondents)

Yes 54

No 36

Don’t know 10

How well would you rate your IT department’s role in shaping your organisation’s competitive advantages? Rate on a scale of 1 to 5, where 1=Very well and 5=Not well at all. (% respondents)

1 - Very well 14 2 43 3 33 4 9 5 - Not well at all 1

32 © Economist Intelligence Unit Limited 2012 Winners don’t play dead Appendix Doing more with less in an uncertain future Survey results

What kind of priority does your organisation accord to the following strategies? Rate on a scale of 1 to 5, where 1=High priority and 5=Not a priority. (% respondents) 1 High 2 3 4 5 Not a priority priority Investing in technology 31 34 22 10 3 Outsourcing services 8 21 30 24 17

How would you rate your IT department’s contribution to the success of your organisation’s business priorities in reducing business costs, entering new markets, or managing risks? Rate where 1=Large contribution and 5=Small contribution. (% respondents) 1 Large 2 3 4 5 Small Don’t know contribution contribution Reducing business costs 22 39 30 5 4 1 Entering new markets 14 23 29 17 13 4 Managing risk 13 31 31 15 7 4

Overall, does your organisation place more emphasis on cost cutting or operational investments? Drag the slider button to choose a relevant percentage split that reflects how each option should be weighted (eg, 60% to 40%). (% respondents) 100:0 90:10 80:20 70:30 60:40 50:50 40:60 30:70 20:80 10:90 0:100 Cost cutting : Operational investments 2 3 10 14 18 14 15 10 9 3 1

Over the next 12 months, how likely are the following scenarios? Rate on a scale of 1 to 5, where 1=Very likely and 5=Not at all likely. (% respondents) 1 Very 2 3 4 5 Not at Don’t know likely all likely Double-dip recession in the global economy 24 39 24 6 4 3 Sovereign debt default in the Eurozone 25 37 24 8 3 4 Break-up of the Eurozone 6 17 23 28 22 5 Further political turmoil in the Middle East 26 35 26 9 2 2 Oil prices spike to US$150 a barrel 7 23 32 25 9 4 Political unrest in China 3 15 28 31 17 5 Chinese economy crashes 3 8 21 33 32 4 Developed economies fall into deflationary spiral 4 27 38 20 8 4 High inflation forces policy tightening in emerging markets 8 39 31 14 4 5 Widespread social unrest caused by rising food and commodity prices 9 27 32 21 7 4

If the following scenarios were to take place, what impact do you think they might have on your business? Rate on a scale of 1 to 5, where 1=Very positive and 5=Very negative. (% respondents) 1 Very 2 3 4 5 Very Don’t know positive negative Double-dip recession in the global economy 3 7 19 34 34 2 Sovereign debt default in the Eurozone 2 5 36 30 21 6 Break-up of the Eurozone 2 7 33 27 22 8 Further political turmoil in the Middle East 2 8 42 25 17 7 Oil prices spike to US$150 a barrel 7 12 24 27 25 4 Political unrest in China 2 8 40 26 16 8 Chinese economy crashes 3 10 29 27 25 6 Developed economies fall into deflationary spiral 1 7 25 34 28 5 High inflation forces policy tightening in emerging markets 2 7 35 35 16 5 Widespread social unrest caused by rising food and commodity prices 2 5 28 36 25 4

In which country are you personally located? In which region are you personally based? (% respondents) (% respondents)

United States of America North America 19 25 United Arab Emirates Asia-Pacific 7 24 United Kingdom, Canada Western Europe 6 22 India Middle East 5 15 Pakistan Latin America 4 7 Australia, China, Germany Africa 3 5 Brazil, Israel, Singapore, Bahrain, Hong Kong, Nigeria, South Africa, Eastern Europe Spain, Switzerland 3 2 Malaysia, France, Italy, Mexico, Saudi Arabia, Belgium, Indonesia, Portugal, Colombia, Czech Republic, New Zealand, Qatar, Thailand, Austria, Brunei Darussalam, Bulgaria, Hungary, Jordan, Lebanon, Netherlands, Oman, Philippines, Romania, Sweden, Turkey, Uruguay 1

34 © Economist Intelligence Unit Limited 2012 Winners don’t play dead Appendix Doing more with less in an uncertain future Survey results

In which country is your company headquarters located? Which of the following best reflects the ownership structure (% respondents) of your organisation? (% respondents) United States of America 28 Privately-held company United Kingdom 51 7 Publicly-listed company Canada, Germany 35 5 State-owned enterprise India, United Arab Emirates 7 4 Non-governmental organisation and/or not-for-profit organisation Switzerland 4 3 Other France, Australia, Pakistan, South Africa, Hong Kong, 3 Israel, Brazil, Italy, Mexico 2 Bahrain, Singapore, Spain, Netherlands, Nigeria, Saudi Arabia, Belgium, Malaysia, China, Indonesia, Romania, Sweden, Austria, Which of the following best describes your job title? Brunei Darussalam, Colombia, Hungary, Japan, Lebanon, Oman, (% respondents) Portugal, Qatar, Thailand, Uruguay 1 Board member 5 CEO/President/Managing director In which region is your company headquarters located? 27 (% respondents) CFO/Treasurer/Comptroller 8 North America CIO/Technology director 33 2 Western Europe Other C-level executive 27 7 Asia-Pacific SVP/VP/Director 17 16 Middle East Head of business unit 11 7 Latin America Head of department 6 8 Africa Manager 4 14 Eastern Europe Other 2 6

What are your company’s annual global revenues in US dollars? (% respondents)

$500m or less 46 $500m to $1bn 13 $1bn to $5bn 15 $5bn to $10bn 7 $10bn or more 19

What is your primary industry? What are your main functional roles? Choose up to three. (% respondents) (% respondents)

Financial services General management 16 46 Professional services Strategy and business development 15 39 Manufacturing Finance 9 24 IT and technology Marketing and sales 8 24 Energy and natural resources Operations and production 7 15 Healthcare, pharmaceuticals and biotechnology Risk 7 11 Government/Public sector Customer service 6 10 Consumer goods IT 4 9 Construction and real estate Information and research 4 8 Entertainment, media and publishing R&D 4 7 Education Human resources 4 4 Logistics and distribution Supply-chain management 3 3 Chemicals Procurement 3 3 Automotive Legal 2 2 Telecommunications Other 2 3 Transportation, travel and tourism 2 Aerospace/Defence 2 Agriculture and agribusiness 1 Retailing 1

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