Despite economic slump, Canadian private companies more optimistic than ever; 82% plan to grow and expand over next 12 months, says PwC

TORONTO, Oct. 12, 2011 — Despite another slowdown in the economy, Canadian private companies are still aiming for growth and expansion. In fact, their confidence level is the highest it’s been since 2005. This year’s Business Insights survey showed that 82% of respondents are striving for growth compared to 66% last year.

“Canadian private companies learned a lot through the recession about how to survive and they’ve repositioned their businesses to face the challenges. Having adapted to the new business reality, they are ready for whatever the markets throw at them, which accounts for the optimism,” says Tahir Ayub, Canadian leader of PwC’s Private Company Services practice.

While determined to grow, many private companies surveyed have been more reserved with their expectations for growth in response to the uncertainty in world markets. For example, only 10% of respondents were looking to aggressively grow by 15% or more, compared to last year, when 24% expected to grow by more than 15%. While remaining optimistic, they are also being realistic. When surveyed in June/July 2011, 83% said they expect their business to do a little or a lot better over the next 12 months. This number fell to 74% in September 2011.

Over the next 12 months, businesses predict the top three issues to be: competition (34%), profitability (29%), and labour shortages (26%).

“It is just a more highly-charged competitive market today. Private companies realized how important it was to keep improving during the recession and they’re continuing to look at their cost base and efficiencies,” Ayub says.

In order to improve competitive performance, the top 10 priorities cited were:

1. Improving processes – 47%
2. Reducing costs of operations – 46%
3. Improving staff skills – 39%
4. Better targeting of customers – 37%
5. Staff retention – 33%
6. Expansion plans – 30%
7. Investing in IT – 22%
8. Strategy definition/evaluation – 21%
9. Collaboration/strategic alliance – 21%
10. Increased R&D/innovation – 19%

While these are challenging times, private companies are embracing new ways of thinking and investing in new solutions to support their growth agenda by:

Getting a clear understanding of their cost of inputs — At a time when the cost of raw materials is on the rise around the world and globalization has heightened competition, private companies have to get their cost of inputs right. Not surprisingly, this year’s respondents are employing a range of strategies to manage supply chain costs. While half are cutting costs in the supply chain, one-third are increasing prices. Thirty-three percent are absorbing eroding margins in their profits—an unsustainable strategy and one largely employed by companies that are not planning to grow.

Focusing on innovation to drive efficiencies — When asked about their expectations for company innovation, 86% of respondents cited a focus on operational and organizational innovation, while 78% cited the development of new products or services. Both areas will be important in helping Canada’s private companies maintain and gain market share in a globally competitive marketplace. Also encouraging, 75% are actively seeking input from customers to drive innovation.

Using technology as an enabler for efficiency and innovation — Close to 60% cited their top objective for leveraging technology was to make their business processes more efficient. Half of the respondents said their goal is to use technology to attract new customers, while 47% said they will use it to drive growth and competitiveness. The top four areas of technology development that respondents stated they are likely to invest in over the next one to three years are: mobile computing (43%), social media/networking (42%), next-generation data management and analytics (34%), and information security (33%). Only 21% stated they would be investing in cloud computing, an area that has tremendous potential to help private companies compete more effectively.

Re-assessing their people strategies — With labour shortages cited as one of the top concerns for the coming year, 71% of respondents plan to change their people strategies by using more non-financial rewards to motivate staff over the next 12 months. Thirty-eight percent of respondents said they were working with government/education systems to improve skills in the talent pool while 44% are increasing the recruitment and retention of older workers.

Embracing emerging markets at home and abroad — Forty-nine percent of this year’s respondents view foreign direct investment (FDI) into Canada from emerging economies as an opportunity. Of those respondents who view foreign direct investment into Canada as an opportunity, 56% cited it as a way to establish direct ties with high-growth emerging markets. About six-in-ten businesses surveyed are currently doing business or considering doing business with North America, while 40% are currently doing business or considering doing business with Asia and 21% are looking into South America as an area of interest. The most popular source of entry into foreign markets has been exporting (22%), while 16% of respondents use sales representatives, 15% are setting up operations, 14% are entering into joint ventures with local companies and 10% are exploring opportunities for acquisition of businesses.

The findings this year suggest that private companies continue to be proactive and forward-thinking in adapting to the new global environment of uncertainty. “The big question right now for everyone is what is the knock-on effect of the turbulence we are seeing in world markets?” says Ayub. “The fact is, you can’t control everything. But Canada’s private companies are well-managed, well-capitalized and well-positioned to lead the way. And this is good news for Canada.”

About the Business Insights Survey of Canadian Private Companies

The seventh annual Business Insights Survey examines issues affecting Canadian private companies. In the summer of 2011, over 300 leaders of Canadian private companies completed the survey from a broad range of industries. In September 2011, PwC commissioned a supplemental survey of respondents. 135 of the original 306 participated. The sample is concentrated around four provinces – British Columbia, Alberta, Ontario and Quebec.

Please visit www.pwc.com/ca/businessinsights for more information on the Business Insights 2011 survey, including:

• A copy of the full 31-page Business Insights report
• Regional “On-the-Ground Observation” reports for British Columbia, Alberta, Ontario and Quebec
• In-depth interviews with the leaders of select private companies – Barry Brad of PROJEX, Bruce Levitt of Levitt-Safety Limited, and David Labistour of Mountain Equipment Co-op.

About PwC’s Private Company Services (PCS)

More than 65% of PwC Canada's clients are private companies, ranging from high net worth individuals to owner-managed family businesses and large, professionally-managed businesses. PwC's Private Company Services (PCS) group is a dedicated team of business advisors who help private company owners resolve day-to-day business issues and achieve long-term success. PCS offers the perspective of a third party with professional industry knowledge, business consulting, tax and accounting expertise. For more information about PwC's Private Company Services, please visit www.pwc.com/ca/private.

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