The Sage Group PLC, reports its results from the second, broader edition of The Sage Business Index – International Business Insights.  Polling over 10,000 businesses across Europe, North America, Africa and Asia, the research shows general declining confidence in global and local economies, but cautious optimism in businesses’ own prospects over the next six months. 

The research also revealed that most businesses’ performance held steady or improved over the last six months, and, despite the challenges ahead, are looking to invest and expand in the next six months.  Businesses are also once again calling on governments around the world to provide more support and cut red tape which they say is not only hampering their growth but also general economic improvement.

(Below 50 is decline/less confident above 50 is improvement/more confident, 50 is no different)

Fieldwork was undertaken this July/August 2011 in the US, Canada, UK, France, Germany, Austria, Spain, South Africa, Singapore and Malaysia.  The research was conducted by Populus on behalf of The Sage Group plc.

Economic Confidence

> overall decline countered by some positive signs at country level

Across the board, businesses in all countries said that compared to six months ago, they felt the global economy was in decline with the average index score coming out at 44.47.  This is in contrast with views earlier this year where the index showed that businesses were slightly more positive about the recovery in the global economy with a score of 52.13.  Of all the countries surveyed, companies in the UK and the US were the most pessimistic, while those in Malaysia and Singapore were the least gloomy.  German businesses have witnessed the most significant drop in economic confidence when it comes to global economic outlook, with their score falling from 61.07 to 46.94, although this still leaves them the most confident of western economies surveyed.

When it came to the businesses’ local economy, the picture was mixed, but overall the index score of 47.11 shows that most businesses felt their local economies had only slightly declined compared to the global economy. This is in sharp contrast to the last index where businesses saw an improving picture at 57.17 (here it is notable that German businesses’ strong confidence at the time affected the overall score).  The survey also showed a gulf between businesses that felt the last six months had improved - those in Canada, (which was the most positive about their country’s economy), Germany, Austria and Malaysia/Singapore - with those seeing a decline – in the UK and the US, and Spain being the most pessimistic.

Business Outlook

> marginal but significant improvement

The only positive score, 57.88, in this index came when businesses were asked if they are more or less confident about their own prospects over the next six months.  In the last Business Index, businesses rated their confidence at 56.48 so a marginal improvement, but when taken into context with the negative economic sentiment, this positive outlook appears significant.  Business in Malaysia and Singapore had the highest score (69.7), followed by South Africa (62.58). Of the countries surveyed both in this and the previous survey, Canadian businesses showed the largest increase in confidence about their own prospects with a score of 59.38, compared to 55.08 six months ago. 

Business Performance and Challenges

> revenues maintained, energy cost challenges

Despite these wider conditions, some positive news came from the businesses surveyed with over a third (35 percent) showing revenue increase over the last six months, and nearly the same (34 percent) holding steady. Only 12 percent said they were forced to reduce the number of employees, with Spain being the major exception where 24 percent of businesses have reduced the number of employees. For the many who felt their biggest challenge would be maintaining or growing revenue in the last index, two thirds have managed to do so. 

In fact, the biggest challenge faced over the last six months was the rising costs of energy, fuel and raw materials, with nearly half (47 percent) selecting this option in their top three challenges.  The countries feeling this most acutely were the UK, South Africa and Germany.  One in five businesses in the US saw political instability as a challenge, while in Malaysia/Singapore a quarter were challenged by recruiting skilled workers. 

Unsurprisingly the biggest challenge businesses expect to face over the next six months is to maintain and grow revenue with 46 percent selecting this in their top three, followed by rising costs of fuel, energy and raw materials as well as gaining new customers and accessing new markets at 43 percent each.

Future Plans

> invest to grow

When it comes to planning for the next six months, the majority of businesses indicated the drive to not only survive but to grow, with investment in sales and marketing (33 percent), diversifying into new markets (31 percent) and launching new products and services (24 percent) as the top three priorities.  On the other hand 18 percent said they did not know what they planned to do, perhaps indicative of the uncertain conditions.

For over a quarter of German, Austrian, South African and Malaysian/Singaporean businesses recruitment was a priority, with 32 percent of South African firms also looking to invest more in training. 22 percent of all businesses are also seeking to invest in technology to improve efficiency with the US and South Africa the most likely to select this option.

The role of government

> bureaucracy remains a hindrance, most burdensome laws identified

As in the last Business Index, companies are in agreement about the factors that restrict them - irrespective of country the least favourable aspect of doing business is government bureaucracy and legislation, followed by government handling of economic challenges. 

For those who chose government bureaucracy and legislation, this time the survey delved into what they saw as the most burdensome regulation. In many cases tax law was cited as the most onerous, however in the UK this translated as health and safety regulation, in South Africa employee and labour law, in Spain licensing law, and in Malaysia/Singapore tender procedures for public projects.

Consequently all countries surveyed rate a lessening in bureaucracy and legislation as the number one priority for government in helping businesses, the only exceptions being the US, Malaysia and Singapore where the top priorities were reducing national debt and reducing business tax respectively.  In the US, 58 percent selected reducing national debt, an increase of 7 percent since the last survey.  Following priorities in all countries included reducing business tax and further developing skills and education. 

Guy Berruyer, Chief Executive of The Sage Group said: “Tenacity and resilience are of part of small and mid-sized businesses’ DNA.  Despite the wider economic circumstances they are focussing on what they need to do to continue growing.  Even while were carrying out the fieldwork for this edition of the Business Index there was significant change in financial markets and a lot of bad news about the global economy, leading, not surprisingly, to a drop in confidence.  Nevertheless the respondents to our survey are showing their entrepreneurial spirit and plan to invest for the future.       

“With over six million customers all around the world, we are in a unique position to both understand the macro challenges facing businesses, as well as the challenges they face on a local level.  Using this platform of regular research into business confidence on a global scale, we want to represent an honest picture of the realities facing businesses every day, and provide insight into how Sage, governments, businesses and industry can further support business communities and the vital contribution they make to economies.”