Confidence builds on confidence in S.I.

Confidence builds on confidence in S.I. – business survey

“Business confidence builds business confidence.”

Nowhere is that maxim better illustrated than in the findings of a joint survey undertaken of South Island business leaders.

The July survey, undertaken by chartered accountancy firms Polson Higgs and McCulloch and Partners, shows a sharp rise in confidence compared with a similar survey in December 2008.

Michael Turner, partner, Polson Higgs, said that 70 per cent of respondents expected their businesses to grow over the next two years, compared with 55 per cent in December.

“Of these, nearly two thirds expect that growth to be in excess of 5 per cent and in many cases, greater than 10 per cent,” he said.

Mr Turner said that South Island businesses felt the business downturn later than their North Island counterparts.

“To be fair, it was probably later affecting South Island companies, but when you look at the comparison between the December and July surveys, you can see that businesses have moved from a more short-term approach to the economic environment to a more structured approach.

“For example, in December, companies were looking at raising price margins in what was a difficult market as well as securing trained staff, which was a reflection of the tight labour market.

“By July, 80 per cent of all firms surveyed were reviewing internal structures and there was a greater emphasis on securing lower cost finance. The emphasis on staff had decreased and there was also a lowering in the number of companies looking to downsize their overall operations.”

This softening in the labour market also had a marked effect on the way businesses were handling their staff and recruitment processes.

“In December, the primary driver in attracting and retaining staff was in the area of financial rewards, along with the offer of flexible working arrangements and career enhancing opportunities. By July, the greatest emphasis in the workplace had moved to providing a clear culture with its associated values.

“The type of question that companies were wrestling with was ‘if I lay off staff, how will that affect the culture of the organisation’? Ten years ago, that would not have featured. Training and development stayed at about the same level while the other growth area was in offering opportunities to gain a diverse range of experiences. Another product of a soft market is employees being keen to broaden their range of skills.

“The new work environment has also brought about marked changes in employee behaviour. There is a greater willingness to innovate and explore business opportunities, there is a willingness to work collaboratively with other colleagues, a definite motivation to perform and a willingness to offer discretionary effort,” he said.

Another part of the survey asked respondents to identify the three main challenges facing their businesses.

“The two main drivers in December of controlling costs and increasing efficiency have not changed, although the emphasis on controlling costs has dropped, which probably indicates that this has already been done. Perhaps surprising is the push to find new clients, reflecting the fact that a percentage of existing customers have dropped away.

“Succession planning is no longer on the radar as voluntary staff turnover has dropped while dealing with regulations has emerged as a key challenge, although this may reflect expectations that the new Government was going to deal quickly with red tape and this has not eventuated.”

Other key findings from the research:

Investment behaviour
Plant and equipment purchases and research and development spending are the two main casualties of the present environment. Spending on both these areas has been down over the last 12 months, and will remain down over the next 12, but at a slightly better level. Sales and marketing, IT infrastructure and staff training are likely to have an increased investment over the next 12 months, albeit only small.
“This suggests that businesses have been more focused on improving their short-term financial results through increased sales and efficiency gains than through their longer term positions via investment in plant and R&D.”

Environmental issues
As economic conditions deteriorated in late 2008, there was a significant drop in the proportion of businesses reporting that environmental issues were significant to their business. However, as a degree of optimism has returned, environmental issues have assumed greater significance again, although not to the extent of two surveys ago in May 2008.
“The main motivations driving environmental issues are enhancing brand reputation, reducing costs and responding to customer demand. In essence, companies are adopting pragmatic responses to external or internal pressures rather than initiating changes simply because they are seen as intrinsically worthwhile,” he said.

The survey was carried out on-line with 78 respondents from 311 companies approached. Companies with a turnover between $1 million and $5 million (37.5 per cent) made up the majority of respondents.

ENDS

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