Research digest

EMERGING MARKETS

China poses the biggest threat of all the emerging countries to global companies’ competitiveness, but they have yet to react to this in any meaningful way. A survey by McKinsey found that 41 per cent of global executives saw China as the main threat to their company from the emerging markets, ahead of India, South-East Asia and Eastern Europe.

But only 18 per cent of companies had changed their global strategy “a great deal” as a result of the perceived threatm, and 34 per cent had not altered it at all (see chart).

The main advantage of trading with China today was seen as low-cost production, by 77 per cent of global executives, and this was still expected to be the case in three years’ time by 69 per cent. Only 8 per cent saw superior products or services as a competitive advantage and 7 per cent highlighted attractive brands, although 24 per cent and 22 per cent respectively thought these would become advantages over the next three years.

Fifty-nine per cent cited support from the Chinese government, a figure that is expected to remain the same over the next three years.

A parallel survey by McKinsey also revealed that 77 per cent of Chinese executives expected revenues from outside China to increase over the next three years. But a lack of managerial talent was seen by 44 per cent as the biggest barrier to this, followed by 25 per cent who cited a lack of finance.

But a lack of executive support was far more of a challenge in companies that were not seen as best-in-class, highlighted by 45 per cent of these compared with 18 per cent of best-in-class organisations.

www.mckinseyquarterly.com

CHIEF FINANCIAL OFFICERS

Eighty-four per cent of C-suite executives see the CFO as a business partner of the CEO and 60 per cent view this relationship as the closest on the executive board, according to Ernst & Young’s CFO survey (see chart).

But the survey – where 51 per cent of those questioned were CFOs, treasurers or financial controllers – also revealed that 31 per cent of respondents, and 50 per cent in the US, believe CFOs do not have sufficient understanding of the wider issues their businesses face.

Thirty-five per cent of executives felt CFOs should allocate their time to being a business partner, with 17 per cent believing it should be spent in a “score-keeper” role monitoring company results.

But in practice only 26 per cent of the CFO’s time was spent in a business partner capacity, compared to 25 per cent as score-keeper.

www.ey.com

RISK MANAGEMENT

Seventy-five per cent of senior executives expect trading will become more complex over the next decade and just over half believe they will face more severe risks.

A survey by the Economist Intelligence Unit asked executives to predict the major threats to their organisation over the next decade and assess how prepared they were. They identified 12 key risks on the basis of their likelihood and severity. These included instability in the Middle East, international terrorism, asset-price collapse and oil price shocks.

Twenty-six per cent of companies currently used scenario planning to predict future risk, the research found, with 41 per cent using it on an ad hoc basis and 29 per cent saying they would consider using the technique in the future (see chart).

Forty-eight per cent of companies planned three to five years ahead, 21 per cent two years ahead and 11 per cent one year ahead.

Only 14 per cent looked between five and 10 years into the future and just 3 per cent beyond that.

www.eiu.com

SUPPLIER ENABLEMENT

Fifty-four per cent of enterprises say enabling suppliers is “very important”, with a further 18 per cent labelling it “critical”, according to Aberdeen Group’s supplier enablement survey.

The main drivers for this trend were to enable business-to-business e-commerce with suppliers, cited by 58 per cent of respondents, reduce procurement operating costs and reduce accounts payable operating costs (see chart).

The report highlighted an increased focus on the accounts payable side. “Although the heart of supplier enablement lies within the procurement and sourcing aspects of the source-to-settle lifecycle, there is rising attention to enabling increased efficiency in invoice and payment processing by suppliers,” it said.

The most common strategy to drive supplier enablement was to implement a supplier collaboration or information management system, used by 52 per cent of companies, followed by measuring supplier enablement activities (29 per cent).

Other strategies were to mandate supplier adherence to standards, channel more business through electronically enabled suppliers and outsource sub-processes related to supplier enablement (all 28 per cent).

www.aberdeen.com

REDUCING OVERHEADS

Companies can save as much as 45 per cent of the expected decline in pre-tax profit by reducing costs from general and administration (G&A) functions.

A study by the Hackett Group found that companies could reduce G&A costs by 15-41 per cent by optimising certain processes, with a further 6-8 per cent coming from reduced technology spend. Selective globalisation could also reduce process costs by 60-80 per cent.

If average pre-tax profits of Global 1,000 companies fell from 9.3 per cent to the total reached in the 2001 recession of 5.5 per cent, between 21 per cent and 45 per cent of that decrease would be absorbed, the report concluded.

www.thehackettgroup.com