Winners dont 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

1

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

© Economist Intelligence Unit Limited 2012


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

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 findings and views
expressed in this report do not necessarily reflect 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

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

Interviewees

Chris Boyle, managing director, Black Diamond
Capital Management

Ravi Pandit, chairman and group chief executive
officer, KPIT Cummins

David Burns, general manager, IBM Global
Technology Services

John Pearson, chief executive officer Europe,
DHL Express

Sabri Challah, vice-chairman and senior partner,
Human Capital, Deloitte

Charlie Peters, senior executive vice-president,
Emerson Electric

Pete Cittadini, president and chief executive
officer, Actuate

Gil Priver, executive vice-president, Retalix

Harris Diamond, chief executive officer,
Constituency Management Group,
Weber Shandwick, Interpublic Group
Stuart Fenton, president, EMEA & APAC,
Insight Enterprises
Ian Foottit, partner in financial services, Deloitte
Vikram Gulati, chief executive officer,
Happiest Minds
Buddy Gumina, senior partner and co-head of
healthcare group, Apax Partners
Chris Morgan, senior vice-president, graphics
solutions business imaging & printing division,
Hewlett-Packard

Doug Shaw, chief executive officer,

Monotype Imaging Holdings
Mahmut Sinoplu, managing director,
Sabanci Group
Eivind Slaaen, senior vice-president, Hilti
Patrick Spence, vice-president and manager of
global sales & regional marketing, Research In
Motion (RIM)
B.G. Srinivas, senior vice-president and member of
the board of directors, Infosys
Thomas Waechter, president and chief executive,
JDS Uniphase Corp.
Matt Williams, partner and group planning
director, The Martin Agency

Krishnakumar Natarajan, chief executive officer,
MindTree

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

Executive summary

A

s developed economies shudder in response to Europe’s debt crisis, political unrest in the Middle

East, 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 536 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 deflationary cycle in developed markets as a real possibility, but this does not mean they
are giving up on growth.
The principal findings 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 confident 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 survey that underlies this report is based on
answers from respondents, of which 49% were C-level
executives. The head offices of their organisations are
based in around 70 different nations. Around 33% of
them have company headquarters in North America;
27% in Western Europe; 17% in the Asia-Pacific region;
11% in the Middle East; 6% in Latin America; 4% in
Africa; and 2% in Eastern Europe. Companies with
annual revenue of US$500m or less compose 46% of
4

the respondents and 19% of the responses came from
companies with annual revenue of US$10bn or more.
The financial services industry is the most strongly
represented, with 16% saying it is their organisation’s
“primary industry”. The survey also covers nearly
all other industries, including professional services
(15%), manufacturing (9%) and information
technology (IT) and communications (8%).
Many of the organisations in the survey are
multinational. Of the 83% of respondents that say they
do not have a head office in the Asia-Pacific region,
around 60% have “significant operations” in that
region.
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Winners don’t play dead
Doing more with less in an uncertain future

l Many firms 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-Pacific 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-Pacific 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 efficiency as one of
the most important elements of their success, and they plan to build on that by using more Internetbased 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 finding important new ways to attract customers and
employees.

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

Introduction

F

or companies trying to plan for the next few years, the second half of 2011 bore a worrying
resemblance to the end of 2008. Economic confidence crumpled as a series of economic and political
crises, improbable just months earlier, jolted the financial 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 firm 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 confidence 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 deflationary 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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Winners don’t play dead
Doing more with less in an uncertain future

The motive and the means to invest for growth

B

usinesses know they can’t shrink their way to growth. According to our survey, companies expect
revenue 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-Pacific region to be the focus of their
expansion plans, acquisitions and revenue growth. They also expect companies headquartered in AsiaPacific 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
profitability 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 firm. 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 financially
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

7

Source: Economist Intelligence Unit survey, September 2011.

© Economist Intelligence Unit Limited 2012


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

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 firm based in London. Indeed, some financially 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 firm. “We’ve tried to make sure we have dry
powder,” he says.

A question of timing
Although they see the need, corporate officers seem less confident 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 firm 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-fisted. Companies with high debt levels and weak credit ratings need to be
particularly conservative, given that tougher lending standards could make refinancing difficult 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 finding 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 finding new ways
to become more efficient. 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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Winners don’t play dead
Doing more with less in an uncertain future

Investing in innovation

“[The past few
years] gave us the
opportunity to reevaluate some of
our businesses and
make them more
resilient and more
relevant.”
Harris Diamond, Interpublic

C

ost control is enormously important, but, at some point, companies that don’t directly invest in
expanding their markets and developing innovative products and services will risk atrophy and lasting
competitive disadvantage.
The companies in our survey are starting to sense a fairly urgent need to act. Despite their misgivings
about the present, they rate investing for revenue growth as their top priority over the next 12-36
months, with reducing costs ranked second. “We believe that standing still is going backward, so we’re
pushing forward and we need to be innovative all the time” says Gil Priver, an executive vice-president
at Retalix, an Israeli provider of transaction processing and supply-chain-management software for
retailers. “We need to be very clear about making sure we invest heavily in the areas that we believe in,
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 firm’s
Weber Shandwick public-relations business, committed significant cash to modernizing technology.

While some functions were outsourced, the firm 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 financial. “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,
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Winners don’t play dead
Doing more with less in an uncertain future

CASE STUDY 1

Actuate: Investing in innovation

The financial-sector debacle that began the
US recession in 2008 posed a particularly
gruesome threat to US software provider,
Actuate, a company with around 600
employees that derives more than 60% of
its US$135m annual revenue from global

financial-services clients, such as Citigroup.
The firm’s tale of survival reflects several
of the key themes that other corporate
leaders have raised in discussions of how the
recession and its aftermath have affected
their businesses.
The firm made cuts where it needed to,
sought efficiencies, outsourced in a way that
helped it strategically as well as financially,
and made sure to continue generating cash
flow and profits. At the same time, it held the
line against cutting its vital engineering staff
and it continued to develop its key product.
That product, ActuateOne, is based around
on BIRT (Business Intelligence and Reporting
Tools) which is an open-source software
platform for developers. Having regained
almost all the revenue it lost in the recession,
Actuate is now hiring sales people and eyeing
expansion abroad.
“There is a way to make a profit,
regardless of what the macro-level climate
is, if indeed you’ve laid a good foundation
to a good business,” says chief executive,
Pete Cittadini. “The only way you really stay
relevant is to continue investment in moving
the vision forward, regardless of how dire the
times get,” he says. “The strategy here, quite
frankly, is that, if no one is buying anything,
you don’t need salespeople, but you

certainly need engineers, because the lack of
innovation just completely puts a full stop on

10

any progression. We feel that it would have
been extremely, extremely dangerous if we
took our eye off the ball or throttled back the
lever in investing in the reality behind BIRT.”
So the engineers stayed, some
sales agents left and the research and
development (R&D) budget remained fairly
steady at 16%-19% of revenue. At the same
time, earnings per share continued to rise as
the company trimmed costs.
The company changed auditors, saving
US$1.5m over three years. It renegotiated
leases for a saving of US$20m over ten years.
And it turned to outside vendors for some
administrative functions. The year before
the financial crash, it had switched to a sales
pipeline management and communication

were able to get it easily and frictionlessly
download it, and get the real deal, so they
can do some powerful stuff with freeware at
their enterprise.”
Looking ahead, even if there is economic
hardship, Mr Cittadini sees promise.
“Regardless of macro [changes], people

really don’t just stop doing things,” he notes.
“Typically, when we do the analysis of how
well penetrated Actuate is with Citigroup, for
example, versus the theoretical opportunity
for Actuate at Citigroup, we’re not even
penetrated at 5%—this is just the tip of the
iceberg” he observes.
Although such immediate opportunities
are the focus, the company is also expanding
overseas. It is expanding in Japan and even

“It’s a poor existence to live your life and your emotions every day based
on speculation associated with macroeconomics.”
Pete Cittadini, Actuate

system from Salesforce.com that allowed
sales representatives to access information
from their tablets, rather than having to log
onto a clunky home-office system. “That
has saved us money over the years and has
given us competitive advantage, because
information is at people’s fingertips,” says Mr
Cittadini.
These seemingly mundane steps allowed
the company to focus on its core products,
which helped its customers customize and
maximize BIRT open-source software. That
focus was fortuitous in 2008 and 2009, since
the open-source software code is accessible
to anyone for free over the Internet.

“Throughout 2008 and 2009, we saw
increasing numbers of downloads, and
increasing numbers of developers using
BIRT,” says Mr Cittadini. “Being free is good
in a recession. You have lots of people that
understand your product, because they

hiring back sales people, including in Europe.
The company is expanding in China and
India, but emerging-markets growth will for
some time be “exciting large percentages off
of small numbers,” according to Mr Cittadini.
The firm wants to stay focused on its key
product and its clients, rather than worry too
much about external conditions. “It’s a poor
existence to live your life and your emotions
every day based on speculation associated
with macroeconomics,” notes Mr Cittadini.
Having survived the bursting of the dot.
com bubble in 2001 and the recession of
2009, “We’ve been through two turbulent
down cycles within the confines of one
decade,” he notes. “If there is another down
cycle in this new decade that was kicked off
in 2011, I think we’re probably very prepared
for it, since we’ve made a lot of moves
that show us that we can adequately run a
business during down times.“

© Economist Intelligence Unit Limited 2012

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

“It is not about
doing the old
things more
efficiently, it
is about doing
new things more
effectively.”
Vikram Gulati, Happiest
Minds

39% plan to invest in new information technology and 36% would like to spend on new equipment and
facilities. Around 30% cite expanding into new markets and making acquisitions. Holdouts determined to
save their cash for now make up 24%.
Companies that put a premium on diversification of products and services expect this approach to
provide a measure of cushioning and bring new sources of revenue. Companies may invest in providing
services that are in demand in different parts of the economic cycle, or they may look to invent entirely
new products. In manufacturing, some stronger companies are aggressively adding capacity to seize the
customers and markets of rivals who were weakened or destroyed by the recession, says Mr Boyle. “We are
not holding back,” he adds.
For US computer and printer maker, Hewlett-Packard, diversification 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 Internetbased 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

11

Source: Economist Intelligence Unit survey, September 2011.

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

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 efficiently, 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 profitable 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%.

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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 flagging 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-Pacific countries over
the next one to three years. In many cases, the buyers will be companies that already have significant
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-Pacific
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 firms 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

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

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 office 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.

14

© Economist Intelligence Unit Limited 2012


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

CASE STUDY 2

Emerson Electronics: Finding
growth
Emerson Electric is one of America’s unsung
corporate heroes. Based in St Louis,
Missouri, it makes products that nobody
really sees; its brand names can go unnoticed
by the casual passer-by. Yet, over the
years, it has produced a series of excellent
corporate performances. For 54 years in a
row, it has increased its dividend every year.
Between 2005 and 2010 its sales grew at a
compound annual rate of almost 6%, and its
net earnings per share grew at well over 10%.
It lived through the recession with scarcely
a blip. The company survived the global
financial downturn, in part by restructuring
its workforce, reducing inventory levels and
managing its materials costs.
Emerson is currently in the process of
transforming itself from a 20th-century
company that made mainly electromechanical products, to a 21st-century
company that provides support services
for infrastructure, alternative energy and
computer-data centres. For example, in
2010 Emerson made two acquisitions. The
company purchased the UK-based Chloride
Group for US$1.5bn to add emergency power

15

back-up systems to its product line. It also
acquired Avocent Corp. for US$1.2bn, to
enhance its existing heating and cooling
products for industrial customers.
Emerson is also encouraging growth by
developing its overseas presence. In the
company’s most recent financial year, sales
outside the US accounted for almost 60% of
the company’s total receipts. And while sales
in the US grew by a pallid 3% in the year,
sales in Latin America were up by 22%. In
anticipation of this new business, Emerson
had expanded its manufacturing plant and
operations facility in São Paulo, Brazil in
2009. This included construction of a new
48,000-sq-ft manufacturing facility and
regional office.
Specific industries are also opportunities
for Emerson’s expansion plans. New
construction typically means new airconditioning and heating systems, two
product lines where Emerson has seen
growth in the US and Europe. The US
market may be particularly positive in 2012,
as forecasters suggest new residential
construction may add one- or two-tenths of a
percentage point to GDP growth.
The third dimension of Emerson’s growth
strategy is the most intriguing. At its centre

is the idea of moving from being a company
that makes things to becoming a company

that provides business services. This is what
senior executive vice-president, Charlie
Peters, calls Emerson’s “enriched business
model”. Under the model, the aim is to make
Emerson’s products more “intelligent”. For
example, Emerson adds sensors to some of
its compressors for refrigeration systems for
supermarkets. The sensors read the contents
and temperature of the cold cases, and the
data they gather are then used to reduce
energy costs and improve maintenance.
But the process does not end there.
Emerson has also set up what it calls a
“Human Centered Design Institute”. Mr
Peters says the purpose of the institute,
which has a more or less virtual existence, is
“To make products that are not only reliable,
compatible and cost-effective, but that also
bring about a significant improvement in
ease-of-use and workforce productivity.”
The institute studies the company’s “enduser communities”—healthcare units, for
instance, where its mobile workstations
are in use, or supermarkets where its
control systems operate. It then examines
how workers in these locations carry out
their jobs, minute by minute. With that
information, it creates an interface with the

final consumer that is much easier to use. The
interface then becomes part of the value that
the product provides.

© Economist Intelligence Unit Limited 2012


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

Barriers to investment

N

o one would accuse the corporate executives surveyed of taking too rosy a view of the world. A
majority of the survey respondents view renewed recession and euro-zone defaults as likely and
nearly two-thirds say that a deflationary 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 confidence
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 confidence is another barrier to investment. In October 2011 the Conference Board,
a business-research group, published its authoritative index of US consumer confidence. The results
showed low levels of confidence not seen since the pit of the recession. At the same time, British
consumer confidence flirted 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 financial 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 fulfil 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 financial services, where regulatory scrutiny has been intense,
were most eager for a regulatory breather.
Reduced government involvement without a long-term financial 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.

17

© Economist Intelligence Unit Limited 2012


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

Keeping focus and growing smartly

S

elf-reliance may turn out to be a blessing for many companies that voiced striking confidence
in themselves. Forty-three percent say superior products and services are their key competitive
advantages, followed by operational efficiency. Companies see efficiency 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 first tend to bear the brunt of the axing.”
Most businesses are trying to become indispensible by anticipating customer needs and spotting
superfluous 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?

B

ased on the survey and interviews conducted for this report, companies looking to do more with less
in 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 find opportunities for both organic
expansion and acquisitions. China is clearly one of the first 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 difficulties 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 benefits.
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 identified streamlining business processes
as well as maintaining operational efficiency 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-Pacific and North American regions are expected to host the most companies eager
to invest in these new products.

19

© Economist Intelligence Unit Limited 2012


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

l Innovating with technology. Businesses have been quick to see the benefit 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

B

usiness leaders expect little relief from the uncertain and sometimes hostile economic conditions
that have existed for the past three years, but they seem optimistic that they have the drive and
the competitive tools to prevail in difficult 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 sufficient if they are to get beyond survival
and succeed. Many firms 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.

21

© Economist Intelligence Unit Limited 2012


Appendix
Survey results

Winners don’t play dead
Doing more with less in an uncertain 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
have significant operations? Select all that apply.

Which of the following measures has your organisation taken
in the past 3 years? Select all that apply.

(% respondents)

(% respondents)

Asia-Pacific

Reduced labour costs
48

Europe

46

Consolidated facilities
45

North America

38

Reduced capital expenditure
41

Middle East

38

Increased IT spending
28

Latin America

34

Increased outsourcing spending
25

Other emerging markets

30

Increased labour costs

9

29

Reduced IT spending
28

Increased capital expenditure

How has your organisation been affected in the period of
global economic uncertainty since 2008?
Rate on a scale of 1 to 5, where 1=Positively impacted and
5=Negatively impacted.

26

Expanded facilities
23

Decreased outsourcing spending
18

(% respondents)
1 - Positively impacted
5

2
14

3
31

4
35

5 - Negatively impacted
14

Which of the following measures do you expect your
organisation to take in the next 12 months?
Select all that apply.
(% respondents)
Increased IT spending
38

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


Appendix
Survey results

Winners don’t play dead

Doing more with less in an uncertain future

Which of the following measures do you expect your
organisation to take in the next 3 years?
Select all that apply.

In which geographical regions will the labour cost changes
predominantly take place in the next 12 months?
Select all that apply.

(% respondents)

(% respondents)
Asia-Pacific

Increased IT spending

24

34

Europe

Increased capital expenditure

23

33

North America

Expanded facilities

23

30

Middle East

Consolidated facilities

17

29

Latin America

Increased labour costs

11

27

Other markets

Increased outsourcing spending

6

26

All markets

Reduced labour costs

14

26

Reduced capital expenditure
17

Decreased outsourcing spending

In which geographical regions will the labour cost changes
predominantly take place in the next 3 years?
Select all that apply.

13

Reduced IT spending
12

(% respondents)
North America
23

In which geographical regions did the labour cost changes
predominantly take place in the past 3 years?
Select all that apply.

Asia-Pacific
22

(% respondents)

Europe

North America

Middle East

20
15

30

Latin America

Europe

11

26

Other markets

Asia-Pacific

8

21

All markets

Middle East

11

13

Latin America
10

Other markets
6

All markets
12

In which geographical regions did the IT cost changes
predominantly take place in the past 3 years?
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

23

© Economist Intelligence Unit Limited 2012


Appendix
Survey results

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

In which geographical regions will the IT cost changes
predominantly take place in the next 12 months?
Select all that apply.

In which geographical regions will the capital expenditure
changes predominantly take place in the next 12 months?
Select all that apply.

(% respondents)

(% respondents)

North America

North America
26

Europe

25

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
predominantly take place in the next 3 years?

Select all that apply.

In which geographical regions will the capital expenditure
changes predominantly take place in the next 3 years?
Select all that apply.

(% respondents)

(% respondents)

North America

Asia-Pacific
25

Europe

26

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

changes predominantly take place in the past 3 years?
Select all that apply.

In which geographical regions did the outsourcing changes
predominantly take place in the past 3 years?
Select all that apply.

(% respondents)

(% respondents)

North America

North America
28

Europe

26

Europe
23

Asia-Pacific

22

Asia-Pacific
20

Middle East

16

Middle East
10

Latin America

8

Latin America
9

8

Other markets

Other markets

4

4

All markets

All markets
10

24

10

© Economist Intelligence Unit Limited 2012