Confidence remains low, but businesses planning for growth - new PwC survey reveals

While business confidence has not yet been restored, over half of Irish business leaders are planning for growth. This is according to PwC’s 2011 Irish CEO Pulse Survey, published today.

The key findings include:

• Business confidence remains low. For example, under a fifth (16%) are favourable about the outlook for Ireland’s economy in 2011 compared to nearly a third (29%) last year. This is due to the overall state of the economy, weak consumer demand and a lack of available finance. The majority (88%) do not expect Ireland’s economy to return to growth until 2012 or later
• Businesses are planning for growth. CEOs expect to see growth in revenues (54%) and growth in profits (49%) in the next 12 months. They expect that this growth will be achieved through new product development and through exploration of new market opportunities
• The multi-national companies operating here remain committed to Ireland. The majority of MNC CEOs are confident about their groups’ investment in Ireland – with the retention of the 12.5% corporate tax rate and cost competiveness identified as critical. Almost three-quarters (72%) of MNC CEOs have stated that they will either increase (33%) or maintain (39%) their investment in Ireland
• The global economic performance is critical for Ireland’s recovery. As an export-led open economy, the most critical factor for Ireland’s economic recovery, according to the majority of CEOs (56%), is the global economic performance. The most recent IMF World Economic Outlook forecasts growth of 4.5% per year for 2011 and 2012. This growth should have a positive impact on our economy
• Innovation will be a key growth driver. Three-quarters of CEOs believe that innovation is critical to securing competitive advantage and their organisations’ future success. Be it the development of new products, the advancement of working practices or processes or opening up a new market, innovation is seen by Irish CEOs as being critical to the generation of future competitive advantage for their organisation
• There are actions to be taken by government. The implementation of a robust national recovery plan (70%) and Public Sector Reform (68%) are seen as top priorities for government if they are to be successful in restoring confidence and stimulating economic growth

Launching the survey, the Minister for Enterprise, Jobs and Innovation, Richard Bruton, T.D., said:

“This survey provides a valuable insight into the views of key decision makers on the business environment and the economy generally. It confirms that confidence in the Irish economy is still a major problem, among both indigenous and multinational CEOs, which is clearly a concern. However, encouragingly, it also shows that an increasing number of CEOs are planning for growth; and, crucially, that three-quarters of CEOs believe that innovation is critical.”

“The survey also contains important lessons to government from business, which I will take on board. Government has a key role in restoring confidence in the economy by showing that we have a plan to address the problems we face. I believe that the three key challenges for me and my Department in attempting to improve the environment for business are reducing costs, improving access to finance, and encouraging innovation. We have already made a start at addressing these issues through the Jobs Initiative. However, many challenges remain, and I am working hard with my Department to develop plans to ensure that the issues identified by business are addressed so that confidence and growth can return to Ireland.”

Speaking at the survey launch, PwC’s Senior Partner, Rónán Murphy said:

“By accepting the reality of the economic environment and by restructuring their cost base and operating structures accordingly, Irish businesses have demonstrated their resilience. Those businesses which are further advanced in their response are now beginning to focus on planning for, and achieving, growth.”

Other findings include:

• 85% of participants feel that finance is less easily available now compared to a year ago
• The single biggest priority in the year ahead continues to be a focus on controlling the cost base according to 60% of respondents. Linked to cost control is a focus by 28% of respondents on business restructuring programmes
• Developing/motivating and retaining key talent is also a top priority
• A third (33%) expect employment growth while almost the same number (30%) expect employment to decline
• Nearly three-quarters (71%) of survey respondents plan to hold pay at similar levels to last year with only a quarter (23%) planning a pay increase
• Climate change initiatives have not yet gained traction

The survey also highlighted the following:

CEOs wary of risks
Risk management is in the spotlight with much activity around its effectiveness. Over half (53%) have performed risk management effectiveness reviews. Other areas subject to formal effectiveness reviews are the management team (49%); the internal controls (44%); IT security (37%); the Board of Directors (30%); anti-fraud measures (27%) and internal audit (25%).

Key factors for economic recovery
The top factors that will be critical for Ireland’s economic recovery, according to the survey, are the global economic recovery (56%); a stable government (49%) and a reduction in public expenditure (47%). The key barriers to business growth are lack of consumer demand (58%); pressure on margins (52%) and regulatory pressures (33%). The most important factors to maintain and increase Ireland’s attractiveness for foreign direct investment are the retention of the 12.5% corporate tax rate and improved cost competitiveness (48%).

Priorities in the year ahead
The top priorities in the year ahead for Irish businesses, according to the survey, are reducing costs (60%); launching new products (45%); developing/motivating key talent (31%); business restructuring (28%) and entering new markets (26%).

Ann O’Connell, Consulting Partner, PwC added:

“Despite much focus on costs and restructuring over the last few years, costs remain very high on the agenda. This strong focus on cost control together with a clear understanding of the benefits that innovation can bring will leave Irish businesses more competitive and better positioned for growth opportunities.”

Majority understand impact of climate change/sustainability on their organisation
An overwhelming majority (85%) understand the impact of sustainability on their organisation. However, the majority (59%) of Irish CEOs do not consider it necessary right now to embed climate change initiatives into their business strategy. That said, 43% of CEOs see the reputational advantages from introducing climate change programmes. Indeed over a quarter (26%) see the new product and service opportunities that a growing awareness of the impact of climate change will open up for their business.

Government priorities
According to the business leaders, the top priorities for our government are the retention of the 12.5% corporate tax (75%); the implementation of a robust national recovery plan (70%) and reducing public sector costs (68%). Other priorities include ensuring financial sector stability (38%); the renegotiation of the Croke Park agreement (18%) and reducing personal tax (12%).

ENDS

Notes to editor:

About the survey
The survey was conducted in March 2011. There were 182 CEO participants from Ireland’s top companies covering a range of sectors and ownership types.

Key charts:

Favourable outlook for the Irish economy 2007 to 2011 (% of respondents)

Anticipated performance of Irish operations (% of respondents)

FDI: MNCs considering additional investment in Ireland (% of MNC respondents)

Basic pay movements (% of respondents)

Priorities in the year ahead (% of respondents)

Priorities for government in the year ahead (% of respondents)

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