European managers frozen in recessionary headlights

Jun 03 2009 by Nic Paton Print This Article

Managers are becoming increasingly confident that next year will be when the global economy finally recovers. That's good news, of course, but poor management by European managers means they risk being left behind by their counterparts in Asia and the Pacific, who it appears are already far more advanced in their post-recession planning.

A poll of more than 852 senior decision makers from 29 countries carried out by consultancy KPMG has found that half planned a radical change in their strategy as a result of the recession.

But when broken down geographically, it was clear businesses in Asia Pacific were proving far more nimble and adaptable than their European counterparts.

Nearly nine out of 10 businesses in Japan and more than eight out of 10 in Singapore were planning radical changes to their business models in the next decade. In India, the figure was more than seven out of 10 and in China it was two thirds.

In Europe the picture was completely different, with far fewer companies planning such radical changes, said KPMG.

The lowest percentage was among companies in the Czech Republic and the Netherlands where only a fifth were planning major changes to their businesses, rising to a quarter in Hungary and more than four out of 10 in the UK. The highest proportion in Europe was Ireland, where nearly two thirds expected radical change.

Overall, half of the business leaders polled said they expected a recovery next year, with more than eight out of ten confident the recovery would be well underway by 2011.

Just a tenth were optimistic it would still come this year whole a fifth pessimistically saw no sign of an upturn until 2011.

However, UK businesses were more pessimistic than the global sample, with the majority only predicting recovery in 2011, later than their European peers in Germany, Italy and Spain, who all by and large forecast 2010.

For half of the businesses surveyed, the economic downturn is already prompting a change in strategy, with changing customer buying habits and cashflow pressures cited as the main reasons.

Understandably, cost control had become a firm priority in the short term. More UK firms had plans for specific cost control measures than the global sample as a whole, with almost twice as many UK companies planning to reduce headcounts than their global peers, said KPMG.

Nearly nine out of 10 of the UK business leaders polled said they planned to reduce procurement and supply chain costs, against just over two thirds globally.

More than eight out of 10 of the UK sample planned to improve their business processes, perhaps by more automation for example, against just under two thirds globally.

And nearly three quarters of the UK sample said they planned headcount reductions, against around four out of 10 globally.

Sue Bonney, head of tax at KPMG Europe, said: "The question clearly arising from these results is why are European businesses so less likely to plan radical changes than their peers in the Asia-Pacific region. It may be that European enterprises are more mature, more entrenched and may perceive change to be too difficult.

"Indeed for some businesses such as manufacturers with complex, bespoke plant, radical change may well be a major challenge. The results do, however, suggest that it could be the Asia-Pacific businesses that make a virtue out of necessity and adapt to survive in the post-recession world. European enterprises run a risk of being left behind," she added.

While the results showed that most managers around the world saw the global recovery in sight in the medium term, there was still considerable scope for British businesses to be feeling more pain in the short term, she suggested.

What's more, in the current climate, poor, short-termist management was more likely to be found out, and found wanting, Bonney stressed.

"Whilst short- to medium-term survival is clearly of critical importance, adapting to the changing commercial world is also crucial and UK businesses will need to consider their longer-term strategies for the post-recession environment," she said.