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American Express Reports New Optimism

May 11, 2010 By: George Dooley

Senior finance executives from around the world report growing optimism about economic recovery but are proceeding with caution, American Express reports. Companies will invest in categories that will boost growth such as sales and product development while selectively increasing discretionary spending in areas like marketing and technology.

“We’re seeing a significant shift to a more positive outlook among finance executives as companies have moved from simply surviving the present to investing in growth for the future,” said Gunther Bright, senior vice president of global client group at American Express. “At the same time, the experience of the recession set the stage for a newfound and long-term focus on financial discipline and management rigor.”

Companies continue to closely manage the bottom line and maintain the strong financial discipline that was prompted by the recession. The findings were released in the third annual American Express/CFO Research Global Business & Spending Monitor, a survey of 479 senior finance executives from the United States, Europe, Canada, Mexico, Asia, and Australia.

Executives worldwide report a more positive economic outlook, indicating that a sustained recovery is taking hold. Nearly three-quarters of all respondents (71 percent) anticipate economic expansion for their countries over the next 12 months, while only 10 percent expect contraction. This is the highest percentage of respondents indicating that they expect economic expansion in their countries in the three years the American Express/CFO Research study has been fielded. A small majority (56 percent) said they expected expansion in 2008 and only 18 percent in 2009.

The brightest outlook for economic recovery comes from Asia – 87 percent of executives from Hong Kong , 82 percent from Singapore, and 78 percent from India expect growth in the year ahead. Executives in the large industrialized countries have a more measured perspective; 71 percent of executives in the United Kingdom, 66 percent in Germany, and 64 percent in the U.S, say they anticipate growth in the next 12 months.

Eight out of 10 respondents have seen or expect to see a sustained increase in demand for their companies’ products and/or services in 2010. Twenty percent of respondents say their companies have already experienced an increase in demand and 47 percent expect an increase in the second or third quarters of this year. 

As the economic outlook brightens, a majority of respondents (67 percent) say their companies plan to maintain or increase capital spending compared to last year. Nearly two-thirds plan to increase headcount in the next 12 months.

As the world economy recovers, finance executives report a continued focus on financial discipline and protecting the bottom line, even as their companies look to capitalize on increasing demand. A large majority of respondents (85 percent) expect that over the long term their companies will focus closely on cost control and 80 percent expect their companies will maintain a long-term focus on their core operations. At the same time, survey results suggest that companies will take relatively conservative risk postures: only 38 percent of respondents agree that their companies will tolerate high risks in pursuit of high returns in the long term.

Highlighting the balancing act that finance executives face, one survey respondent noted his company would have a “much tighter focus on working capital management, expense control and building strategies to drive growth in down markets.” Another respondent remarked that “the recession has caused my company to look at processes differently with the goal of improving efficiency.”

While financial discipline remains a major focus for finance executives, companies are loosening their purse strings and investing in areas that will help increase revenues.

*    49 percent plan to increase investment in the development of new products and services.
*    46 percent aim to expand through increased sales and marketing activities.
*    31 percent expect to increase investment in M&A activity to drive growth.

Business travel spending is also beginning to stabilize after experiencing a dramatic slowdown during the recession. In addition, some spending increases are planned in areas of travel that are closely linked to revenue growth.

*    Overall, a majority of executives (57 percent) plan to maintain or increase business travel spending compared to last year, with 26 percent planning to increase spending and 31 percent planning to maintain spending.
*    More than a quarter of respondents (27 percent) report plans to loosen policies for travel to meet with new clients or for business development.
*    In a further sign that spending restrictions are lifting, just 34 percent of respondents plan to restrict travel for staff meetings or internal business, compared to 81 percent in 2009. Only 35 percent say they plan to restrict travel to conferences and events, compared to 79% percent in 2009.

“Companies enacted strict new spending policies to protect the bottom line during the recession and finance executives fully expect to enforce these policies for the foreseeable future,” said Bright. “Yet these same policies are helping companies take a more focused, thoughtful approach by spending where the impact is clearly connected to growth and profitability.”



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