If the winds of change haven’t been felt already, business leaders should be tacking hard and plotting a course for growth. Boards that have learned valuable lessons over the last five years around managing budgets, investing in technology and growing talent, and who have made the necessary strategic and operational recalibrations to take advantage of new opportunities, will be the ones who prosper.
Criticaleye spoke to a number of Members from around the globe, operating in a variety of areas, from consumer goods and construction to private equity and investment banking, to examine what their expectations are for 2014 and how they are planning to take advantage of resurgent growth.
According to Mark Spelman, Global Managing Director at Accenture, the broader picture is certainly optimistic: “My bottom-line message is that 2014 will be better than 2013 in terms of macroeconomic growth rates… because, if you look at the three major trading blocs, the US, the European Union and China, I think they’re all going to see some positive upturn in 2014 relative to 2013.”
The US remains the world’s largest economy, with upwards of $16.5 trillion in GDP, and the Bureau of Economic Analysis’s second estimate for GDP in Q3 of 2013 saw figures revised upwards from an annualised rate of 2.8 per cent to 3.6 per cent. That said there are still considerable issues to sort though.
Paul Danos, Criticaleye Thought Leader and Dean of Tuck School of Business at Dartmouth College in the US, comments: “You have all those drags like the tremendous public debt. In the US alone, they’re projecting $20 trillion by 2020, and that’s going to have to be brought down… so we can expect periodic clashes in Congress on the debt ceiling, which will create uncertainty, not to mention the question around whether the Federal Reserve will scale back its programme of quantitative easing.”
Likewise in Europe, there will be plenty of bumps along the way. “The European elections in May are going to be very important,” says Mark. “Mainstream parties are going to struggle… and the more fragmented the European Parliament becomes, the more difficult it’s going to be to drive a reform agenda in Europe.”
Those seeking to expand into Asia’s high growth markets must be fully committed to their strategy. Hellmut Schutte, Vice-President and Dean at China Europe International Business School in Shanghai, comments: “Growth [in China] will continue and markets will become more transparent due to the continuing fight against corruption. This means more of an equal chance for foreign firms… [and] business will be better for multinational companies than before.
“But running operations in China will also become more demanding. Constant upgrading of technology and improving management skill in Chinese companies erode the competitive advantages of many foreign firms. In many industries, standards in China have reached international [levels]; so, depending on the size of a particular market, the outcome of competition in China will determine the success or failure of firms in global markets. This means half-hearted engagements in China have little chance of success.”
Andy Dunkley, CEO of jeans brand Lee Cooper, who completed a $72 million (£47 million) trade sale to US company Iconix earlier this year, says: “With a business such as ours, which is 95 per cent outside of the UK, we see lots of opportunities in global growth for 2014… We have an excellent base in the Middle East, India, China and South Asia [and] we have foundations that can grow at double digits in these markets.”
The key pressure points for 2014 will be, in Andy’s view, unexpected changes in the patterns of growth: “A discussion of the reduction of tapering relief in the US [in 2013] has had a dramatic impact on currency movements and values in India and across markets that are seemingly unrelated. [Therefore, as we grow] we continue to seek a balance which means we are not over exposed in any one market.”
For Giles Derry, Partner at mid-market private equity firm Dunedin, business leaders need to bold without being foolish: “I think there's a tightrope to walk in terms of making sure you're investing for expansion, but without betting the farm on certain assumptions having a specific outcome… how brave you're feeling probably depends on your end markets and which areas of the global economy you're exporting to.”
Appetite for deals
In terms of M&A, research from Big Four firm EY suggests an uptick in deal activity after a five-year period of declining transactions globally. A survey of 1,600 senior executives in more than 70 countries conducted by EY finds that 69 per cent expect deal volumes and deal sizes to improve over the next 12 months.
David Barker, Head of Transaction Advisory Services for EY’s Financial Services division, says: “Banks continue to search for yield and therefore remain enthusiastic financiers of good deals which we think will continue to drive positive trends in M&A…
“In particular, M&A activity among banks will increase significantly following the ECB-led Asset Quality Review programme and the associated balance sheet stress tests, a process which begins in April and continues on through the summer. We’d certainly expect M&A activity to grow off the back of that… particularly around central and southern Europe, as banks choose to reposition which countries they want to operate in as core and in which they will consider reducing their levels of activity.”
Steve Pateman, Head of UK Banking at Santander, comments: “For the banking industry in its broadest context, there’s this massive regulatory agenda in 2014 because it’s the year when mortgage regulations change fundamentally, and all banks will have to adapt to a new system called MMR [Mortgage Market Review]. So, as they head into Christmas, most are probably thinking about whether they going to be ready for MMR on the 26th April.”
Reconnecting with customers is also vitally important for Steve: “[This] will hopefully be the year when banks start to rebuild trust and perform the role we’re supposed to perform in supporting the economy. If it continues to grow and recover from some of the lows of the last few years, it will be easier for the industry to do that.”
Funds for growth
On the public markets, the IPO renaissance over the last six months looks set to continue. Alastair Walmsley, Head of Primary Markets at the London Stock Exchange, says: “Q4 of 2013 is going to be the best quarter for overall capital-raising in the UK market for more than four years… [and] we are expecting the level of activity to continue, potentially even accelerate, into the New Year.
“Investor risk appetite has increased significantly which is being recognised by international companies… so cross-border IPOs, which have been pretty muted around the world this year, are looking likely to pick up going into 2014.”
Proper access to finance combined with a healthy set of accounts will certainly help most businesses that are looking to grow, not least in the property sector. Alison Carnwath, Chairman of Land Securities, says: “Because we have a strong balance sheet and are able to build into a development cycle, and because London, in particular, is under-supplied with first-rate property for occupiers, we see 2014 as being a good year for the property industry. It won’t be so easy, of course, if you’re not well-financed, because accessing funds from banks and alternative sources still remains a problem.
“Another trend we see is that, if interest rates start to rise, retailers will find it increasingly difficult because they haven’t enjoyed a particularly buoyant period. Furthermore it’s going to be testing for consumers who’ve got big mortgages to decide where they’re going to restrict their expenditure. And we expect quite a lot of it to come from them spending less in retail.”
Steve Cooper, Head of Personal and Business Banking for the UK Retail & Business Bank at Barclays, comments: “The housing market is definitely improving, albeit it is largely driven by London and the southeast. But there is improvement elsewhere as well. If I look at business turnover, what they are generating in terms of cash and sales, that’s now gone back to above where it was pre-downturn. It takes a long time to get there, but businesses are definitely generating more sales.
“What I’m not yet seeing is enough businesses investing cash for growth. I’m still seeing [them] generate and hoard cash. It’s not that they’re fearful about the future, just that they… can’t see sufficient opportunity to invest for growth.”
As ever, talent and skills will be a pervasive issue for CEOs in 2014. David Stokes, Chief Executive for IBM in the UK and Ireland, says: “A key issue facing business leaders today is skills. Press coverage over the last few weeks indicates that the UK is lagging behind foreign counterparts in building core skills and estimates predict an annual shortfall of 40,000 science, technology, engineering and maths graduates causing significant problems for business if not addressed now.
“Investment in initiatives which enable young people to build the skills that are valued by the market – thinking particularly about skills that will enable the digital world – will help businesses safeguard their own future as well as the future of our economy.”
Martin Balaam, CEO at IT services concern Jigsaw24, comments: “Talent will be an issue because… anybody that's come up through the ranks in the last five years or so will have never really been in a period of growth…
“We're just in the throes of recruiting a new graduate intake and, also, we're actively working with the local authority in terms of apprentices. There's been a bit of a lull in terms of investing in the next generation, and we're certainly turning that tap back on… so we're bringing on people who, in addition to our existing workforce, can learn on the job and ultimately fill those roles that we believe are going to become available as we grow next year.”
Just from these snapshots of business sentiment it’s clear that as we go into 2014 the mood among the Criticaleye Community is markedly sunnier than at the same point last year. There will be some real areas of growth to capitalise on over the next 12 months, just so long as leaders are prepared to take a punt and have the gumption to make it happen.
I hope to see you soon.