Survey reveals business leaders are more positive about foreign direct investment – PwC 2010 CEO pulse survey

Pictured launching PwC's CEO 2010 pulse survey are (l-r) : Ann O'Connell, (PwC Advisory Consulting Partner), Batt O'Keeffe, T.D., Minister for Enterprise, Trade & Innovation and Rónán Murphy, (PwC's Senior Partner.)

Listen to Ann O'Connell...featured in Accountancy Ireland: August 2010

A quarter more MNCs with Irish operations are considering additional investment in Ireland compared to last year - Irish business leaders confirm confidence is returning.

This is according to the PricewaterhouseCoopers (PwC) 2010 CEO Pulse Survey launched today. The survey gives a snapshot of the views of over 200 CEOs on Ireland’s business environment and the challenges and opportunities it presents for corporate Ireland.

MNC CEOs are more upbeat about the prospects for foreign direct investment with 40% saying they are considering additional investment in Ireland, up from 32% last year. Three-quarters (75%) said they are neither reducing investment nor closing existing operations in Ireland. It is notable that the number of respondents considering closing operations in Ireland is down by almost half on last year, down to 8% from 15% in the previous year. MNC CEOs cited improving cost competitiveness (51%) as a critical factor to maintaining or increasing Ireland’s attractiveness as a location for foreign direct investment. This was followed by a continued commitment to a stable and low tax environment (43%) and enhancing investment in education (30%).

The survey, which covers CEOs from both indigenous and multi-national businesses, also points to clear actions for Government. While action has been taken by Government to address Ireland’s budget deficit and fiscal position, business is now looking for Government to drive the recovery agenda in other areas. Top of the list for action is reducing public sector expenditure; promoting growth for the SME sector; restoring credit, and further incentivising innovation.

Other survey findings include:

• Almost a third (29%) of Irish CEOs are favourable about the outlook for the Irish economy for the next 12 months compared to just 3% last year;
• 17% expect Ireland’s economy to return to growth this year; with a further 51% expecting this growth to return in 2011;
• An overwhelming majority (86%) said that responding to changing customer purchasing behaviour and their approach to risk management (78%) are the top two key drivers for change in the business operating model going forward;
• Reviewing key contracts will be the single most popular cost reduction initiative (76%) in the next year;
• Launching new products will be the key driver of business development (73%). A quarter (24%) also see opportunities for a merger or acquisition;
• Only a third (35%) of Irish CEOs see climate change as a top business priority compared to 62% last year;

Launching the survey, the Minister for Enterprise, Trade and Innovation, Batt O’Keeffe, T.D., said:

“The findings of this survey are a valuable insight into the views of Irish company Chief Executives on the business environment as Ireland enters economic recovery. Our economy is on the turn and we must keep our focus on key areas for recovery: competitiveness; human capital; innovation; infrastructure; green economy; and trade. One of the most important findings of the PwC survey is that confidence among job creators has improved dramatically. Confidence is key – confidence to lend, confidence to spend, confidence to invest, and confidence to hire. Creating new jobs, sustaining existing ones and re-skilling those who find themselves out of work will underpin our recovery and return to growth.”

The survey also highlights that clear challenges remain for Ireland’s economy particularly around cost competitiveness and availability of finance. Reinstatement of lost competitiveness was cited as the most critical factor for Ireland’s recovery (68%) followed by increasing the availability of finance (61%). The survey suggests that businesses continue to tackle these challenges head-on as they prepare their businesses for the economic upturn. Three quarters (76%) will look to reviewing key contracts to achieve further cost savings. The majority (73%) expect to implement a basic pay freeze over the coming 12 months.

Speaking at the survey launch, Ronan Murphy, Senior Partner, PwC, said:

“The survey confirms a sentiment of cautious optimism and confidence with the majority of Ireland’s business leaders expecting growth in both revenues and profits over the next year. Irish companies have set a smarter course for growth as they complete internal reorganisations and remain very alert to emerging opportunities”.

Key business development opportunities will be derived from launching new products (73%), entering new markets (42%) and planning a merger or acquisition (24%). The survey suggests that now is a good time to grow by acquisition due to the perceived value in the marketplace.

Ann O’Connell, Consulting Partner, PwC added:

“The survey highlights some significant refocusing of business models and value propositions by Irish companies in the wake of the economic crisis. Across all sectors, there has been a profound shift in customer purchasing patterns – with greater focus on ‘buying smart’ and seeking greater value-for-money. As a consequence, businesses are responding imaginatively in order to hold and increase their ‘share of wallet’”.

Risk management (78%) is high on the CEO agenda. The survey suggests that risk management is clearly taking on greater importance as a result of the recession as CEOs begin to reshape their strategies. This will produce sustainable long-term benefits for organisations – along with their shareholders, employees, customers and communities.

ENDS

Notes to editor:

The survey was conducted in May 2010. There were over 200 CEO participants from Ireland’s top companies covering a range of sectors and ownership types.

Key findings in the survey are:

Confidence returning

• Nearly a third (29%) of Irish CEOs are favourable about the outlook for the Irish economy compared to just 3 % last year.
• 17% of Ireland’s business leaders expect Ireland’s economy to return to growth this year with over half (51%) expecting growth to return in 2011.
• Over half of survey participants expect revenue (53%) and net profit (57%) growth in the next 12 month compared to around a quarter last year. Employment and capital investment growth expectations are also up compared to last year.

Critical factors for recovery

• The top three factors critical for Ireland’s recovery are reinstatement of lost competitiveness (68%); improvement in the availability of finance/credit (61%) and developing and communicating a clear recover strategy for the Irish economy (57%)

Clear challenges and opportunities - on the cost and revenue side

• While reducing the cost base and business restructuring have been areas of major attention in the last year, costs are still clearly on the agenda. Over a third (38%) of Irish CEOs said that they expect their cost base to decline in the next year with a similar proportion (39%) expecting costs to remain the same.
• Reviewing key contracts (76%), investment in IT (53%) and reviewing the supply chain (47%) are the top three cost reduction initiatives.
• The top business development strategies are launching new products (73%); entering new markets (42%) and planning a merger or acquisition (24%).

More upbeat on investing in Ireland

• 75% of the MNC CEOs said that they were neither reducing nor closing existing operations in Ireland;
• 40% of multinational (MNC) CEOs said that they are considering additional investment in Ireland compared to 32% last year;
• The number of respondents considering closing operations in Ireland is down by almost half on last year, down to 8% from 15% in the previous year.
• The top three factors to maintain/increase Ireland’s attractiveness as a location of choice for foreign direct investment are improving cost competitiveness (51%); a continued commitment to a stable and low tax environment and enhancing investment in education (30%).
• Repositioning Ireland as a location of choice for foreign direct investment was cited by a third (33%) of participating CEOs as being critical for Ireland’s recovery.

Responding to shifts in customer behaviour is a top priority for CEOs include:

• The survey highlights some significant refocusing of businesses by Irish companies in the wake of the economic crisis. Irish CEOs indicated they are responding imaginatively in order to hold and increase their ‘share of wallet’.
• An overwhelming majority (86%) of CEOs are reconsidering their response to changing customer purchasing behaviour; 78% are reviewing their approach to risk management and 76% are revisiting their organisations’ structure. Revisiting talent management strategies are also high on the agenda with 70% of CEOs saying they expect a change here.
• According to the survey the greatest potential barriers for growth are, not surprisingly, the permanent shift in consumer behaviour (68%); lack of available finance (53%) and over-regulation (50%).

Keeping employees motivated - top people priority

• Over three-quarters (76%) of Irish business leaders feel that keeping employees motivated is the top people priority. Talent development (52%) and reducing people costs (45%) also feature strongly. Managing underperformance also remains a key people priority (43%).
• 60% of respondents said that they did not effect a basic pay reduction in the last 12 months but 73% said that they expect to implement a basic pay freeze in the next 12 months. 68% said that they will redesign their bonus scheme.

Climate change is not on the radar screen for business

• Only a third (35%) of Irish CEOs said that climate change is a top priority for their organisation compared to 62% last year.
• Over half of respondents (55%) said that their organisations are not preparing for the impacts of climate change.
• In terms of benefits less than half (45%) expect little reputational advantage from climate change initiatives while only a quarter (26%) said climate change would lead to significant new products and services.

Clear action by Government to drive the recovery agenda

• Areas of greatest priority are reducing public sector expenditure (97%); focusing on promoting growth in the SME sector (96%); improving the availability of finance (95%); incentivising innovation (93%) and promoting Ireland as a stable low tax economy (89%).

Key charts:

Chart: Expected change in business strategy/operating model in the next year (% of respondents)

Chart: Key factors critical to maintain and/or increase Ireland’s attractiveness as a location of choice for foreign direct investment (% of MNC respondents)

Chart: Actions for Government (% of respondents agreed)

According to the survey, Government should:

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