Finance executives in Singapore are cautiously optimistic about economic growth prospects.
By next year, 47 per cent of them expect to see economic expansion. The sentiments of Singapore’s chief financial officers, CFOs, appear less positive than their peers in other Asia-Pacific countries. These were the findings of the fifth global survey of 541 senior finance executives by American Express/CFO Research Global Business & Spending Monitor. Three-quarters (74 per cent) anticipate that Singapore will likely return to robust economic growth within the third and fourth quarters of 2012.
The global outlook for economic expansion among the countries covered by this study was brightest in India (86 per cent), followed by the United States of America, USA (78 per cent), Germany (74 per cent), Mexico (73 per cent), Argentina (70 per cent), Australia (69 per cent), and Canada (67 per cent).
Emerging markets remain as the main revenue generator, with 74 per cent of Singapore businesses saying they will depend more on or expect no change to exports to these countries, compared to the past five years. On the other hand, about two-thirds (62 per cent) of them say their company will spend more on selling goods or services within its domestic market over the next two years.
Investments in mergers and acquisitions, expanded operating capacity, and research and development are on the table as finance executives dip into their companies’ cash stockpiles. More than half (53 per cent) of executives in Singapore say their company will make modest investments to support top-line growth while improving profitability. Seven in ten (68 per cent) will “somewhat likely” use their cash reserves to fund ongoing operations.
Hiring is also on the rise—a majority of CFOs plan to increase headcount over the next 12 months. In Singapore, 44 per cent plan to increase headcount modestly over the next year, with 47 per cent expressing acquiring specialised skills, expertise, or experience as the primary motivation for hiring. However, 41 per cent deemed rising cost of labour or scarcity of well-qualified employees as the greatest threat in 2012.
“CFOs in Singapore remain cautious about the economic outlook, as the country’s external-oriented sectors are still facing challenging times due to persistently uncertain global growth indicators. Singapore’s businesses are still setting optimistic growth targets in fiscal 2012. A total of 65 per cent indicated that they were confident that their company would meet them. This shows some assurance that the outlook would improve over the course of the year,” says Jennifer Berthold, vice president and general manager, Global Corporate Payments, American Express, Singapore.
A Moderate Growth Outlook
Nearly half of the world’s finance executives (46 per cent) believe that “robust” economic growth will return in their countries by the end of 2012. Singapore’s figure is in line with the global average, with 48 per cent anticipating that the country will return to robust growth.
Countries where finance executives are most bullish include Hong Kong (83 per cent), followed by Mexico (77 per cent), and Germany (66 per cent), and
Respondents in the USA and the United Kingdom, UK, report a more extended growth horizon. Three-quarters of US’s (75 per cent) and 58 per cent of UK’s finance executives see robust growth returning at some point after the close of 2012.
Worldwide, finance executives are also setting a higher bar for their own companies’ growth. Three in five (60 per cent) have set more aggressive growth targets compared with 2011.
A majority of respondents (63 per cent) in the Asia/Australia region expect to see economic expansion in their respective countries this year. In Singapore, 47 per cent say their company has set more aggressive goals for 2012, of which 65 per cent expressed confidence that they can achieve.
Opening the Coffers
After amassing large cash reserves as a buffer against the economic uncertainty of the past few years, finance executives say their companies intend to deploy these resources in 2012. Forty-five per cent of participants in this year’s study say their companies are planning to spend down a portion of their cash reserves in the next 12 months. This is in contrast with last year, where 62 per cent of respondents pursued deliberate cash preservation strategies.
Singapore-based finance executives were more conservative, with 32 per cent saying they will use some of their reserves this year. Almost all finance executives (97 per cent) in Singapore say they are likely to use this cash to fund ongoing operations.
Other frequently cited cash destinations include activities focused on energising growth, such as:
Acquisitions (86 per cent),
Increased capital spending (80 per cent),
Expanded operations and headcount (79 per cent), and
Increased research and development (74 per cent).
“Finance executives are looking for ways to stimulate growth, in part by deploying some of the cash that has built up on corporate balance sheets in recent years,” says Jennifer. “We’ll also see finance executives keep a sharp eye on the bottom line, but spend selectively on activities that will drive revenue like sales and marketing and new product development.”
Safe, Smart and Selective
Companies are likely to take a conservative approach to spending and investment over the coming year. Forty-nine per cent of all respondents report that “modest spending and investment to support top-line growth while improving profitability” will characterise their approach to spending and investment. In contrast, only 14 per cent of respondents say they plan to “spend and invest aggressively to boost top-line revenue”.
In Singapore, most executives say they will likely invest more or the same amount over the next year, with more focus on selecting the types of investments that will support long-term growth:
85 per cent of finance executives say they will invest as much, if not more, on developing new products or services,
A total of 81 per cent say they will improve production capacity, while 90 per cent will expand market access through sales and marketing activities,
61 per cent polled say their company will continue to put in the same amount in ‘merger & acquisitions’ in 2012, while 33 per cent say that they will inject more in this activity, and
53 per cent will likely undertake similar investments on improving production-process efficiency, while 35 per cent say they will spend more in this area.
Finance executives are holding the line on travel spending. About half of respondents in Singapore (51 per cent) will spend the same or more on business travel over the next 12 months. Almost all of them (94 per cent) say they will use the money for travel to meet current or prospective clients. This indicates that companies will focus their resources on travel that is closely connected with revenue expansion.
“Frequently, business travel is a key factor that enables companies to win on a national and global scale,” Jennifer says. “Our research suggests that when companies see a positive return on investment from travel, they will continue to spend on it.”
Dealing with Volatility
Many finance executives around the world say their companies are managing volatility effectively — and some even identify volatility as a source of competitive advantage.
In Singapore, about one in three respondents (36 per cent) say they are thriving on volatility and see it as a source of competitive differentiation for their companies, and
Another 30 per cent simply view it as part of the business landscape, while the same percentage see volatility as a problem that is likely to negatively affect their profits or growth prospects.
About the Research
CFO Research Services surveyed 541 senior finance executives at large global companies across a wide range of industries in the US, Europe, Canada, Latin America, Asia and Australia. Company revenues ranged from US$500 million to more than US$20 billion. The research program, which included an online survey and interviews with senior finance executives, was completed in March 2012. Thirty-four of the total respondents are based in Singapore.
Copyright © 2012 Singapore Institute of Management