Business investment is picking up, especially in emerging markets, according to the latest Grant Thornton International Business Report (IBR). The global survey suggests that businesses, especially in emerging markets, are taking a longer-term approach to growth by increasing levels of investment, an encouraging sign in an otherwise bleak economic outlook.
The IBR reveals that the proportion of businesses looking to increase investment in new buildings has risen from 15% to 21% over the past 18 months, and in plant & machinery from 35% to 38%. Expenditure on R&D is also set to climb, further supporting evidence from the World Intellectual Property Organisation which recorded growth of 10.7% in patent filings last year, the biggest increase since 2005. Moreover, businesses are also investing more in their employees – 68% plan to offer pay rises over the next 12 months, compared with 51% in 2010.
By comparison, business expectations for revenues, profits and employment remain at or below levels observed 18 months ago. And the slowdown in the global economy is further highlighted by the sharp rise in the proportion of businesses in the eurozone, China and the US citing reduced demand as a constraint on expansion – at 44% in China, the highest level since 2009.
Ed Nusbaum, CEO of Grant Thornton International, said: “Global economic uncertainty is weighing on short-term business growth prospects. However, it is encouraging to see dynamic businesses willing to adopt bolder, long-term growth plans. This strategy is not about immediate returns in terms of revenues and profits, but rather investing in their long-term growth and competitiveness.”
A regional breakdown of the IBR research reveals that businesses in the emerging markets lead the way in investing for long-term growth. 45% of businesses in the BRIC countries plan to increase investment in research and development over the next year, compared to just 18% of businesses in the G7. Similarly, 47% of BRIC businesses plan to increase investment in plant & machinery over the next 12 months, compared to 37% in the G7.
This focus is apparent in some of the fastest growing markets globally: compared with three months ago, 15% more businesses in China are now looking to increase investment in research and development; in Mexico, 14% more businesses are planning to boost investment in new plant & machinery; and in Turkey the proportion of businesses planning to increase investment in new buildings is up 12%.
Ed Nusbaum added: “With the eurozone still to work through its financial issues and businesses in the US awaiting possible changes in policy following the November elections, it may take some time for the current economic uncertainty to lessen. In this climate, businesses in mature markets are sitting on trillions of dollars, wary of spending and hiring. In the USA alone, it’s estimated that businesses are sitting on over $1.7 trillion in liquid assets on their balance sheets, $12.6 billion more than at the end of 2011. In the UK, businesses are sitting on over £130bn.
“However, the results should act a wake-up call to businesses in developed economies, because while they are sitting on their cash, their emerging market counterparts are investing in their future. If the behaviour continues, they could find their competitiveness eroding as emerging economies put increasing resource behind research and innovation and equipment that will increase their productivity. Even in tough times, businesses need to be forward thinking, keep pace with their competitors and invest in the future of their companies.”
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Notes to editors
The Grant Thornton International Business Report (IBR) provides insight into the views and expectations of over 12,000 businesses per year across 40 economies. This unique survey draws upon 20 years of trend data for most European participants and 10 years for many non-European economies. For more information, please visit: www.internationalbusinessreport.com .
Data collection is managed by Grant Thornton International's core research partner -Experian. Questionnaires are translated into local languages with each participating country having the option to ask a small number of country specific questions in addition to the core questionnaire. Fieldwork is undertaken on a quarterly basis. The research is carried out primarily by telephone.
IBR is a survey of both listed and privately held businesses. The data for this release are drawn from interviews with 3,000 businesses from all industry sectors across the globe conducted in May/June 2012. The target respondents are chief executive officers, managing directors, chairmen or other senior executives.