Optimism in the world economy also fell sharply in Q1 2008, with only 36 percent of respondents optimistic about the global economy over the next 12 months; a 19-point decrease from the previous quarter and 35 points below last year's 71 percent.
"There is a view that the economic downturn in the U.S. will impact foreign markets because the U.S. is a large importer of foreign goods, but we believe expansion to foreign markets is a key opportunity for fast-growth companies," says Ken Esch, partner with PricewaterhouseCoopers Private Company Services practice. "While optimism about the global economy has dropped, there has been no measurable decrease in international sales as a percentage of total sales among the respondents. Exchange rates should continue to help U.S. exporters be competitive in foreign markets and diversification among several economies should help weather a lack of demand in the U.S."
Additionally, net 38 percent of all respondents reported higher costs, a 16 point increase over last quarter and 22 points higher than the previous year. Prices followed suit with net 21 percent of Trendsetter companies reporting higher prices, up from net 16 percent for the last two quarters and net 19 percent last year.
"As a result of significant increases in commodity prices and fuel costs, many companies are negotiating price increases to restore or maintain profitability. Most customers can relate to the need for price increases because they feel the impact of increased costs at the gas station and the grocery store," adds Esch. "Companies are also focused on reducing discretionary spending, such as travel, and improving productivity of the existing workforce to maintain profitability."
Revenue Growth Estimates Drop Sharply but Remain Positive
While 77 percent of Trendsetter companies are projecting growth over the next 12 months - 47 percent of which project double-digit growth - the composite average growth estimate has fallen to 11.9 percent from 15.5 percent in the prior quarter and 18.3 percent last year.
In line with last quarter's results, international marketers are projecting higher revenue growth over the next 12 months, 55 percent higher than their domestic-only counterparts, at 15.2 percent and 9.8 percent, respectively.
"Over the last quarter, revenue growth projections for domestic-only companies have fallen nearly 27 percent, while international marketers have reduced growth estimates by 21 percent. While the slowing economy's effects are obvious on both international and domestic companies, this data suggests that, as predicted, international companies are making use of their larger footprint and taking advantage of the different economies in which they operate," adds Esch.
Slower Spending Anticipated
While plans for capital investments were maintained at the lower 35 percent level, projected increased spending was off, with 68 percent planning increased spending versus 77 percent last quarter. However, net 78 percent of international marketers plan to increase spending over the next 12 months, compared to only 62 percent (net) of their domestic-only counterparts:
International Domestic-Only
Marketers Peers
1Q08 4Q07 1Q08 4Q07
Plans over the Next 12 months:
Major Capital Investments 41% 44% 31% 25%
Expansion to New Markets Abroad 29% 34% 1% 4%
New Strategic Alliances 39% 48% 29% 25%
Increased Operational Spending for:
New Products/Services 42% 48% 30% 27%
R&D 20% 31% 10% 11%
Sales Promotion 36% 46% 26% 27%
"It's important that fast-growing companies continue to invest in their future through capital expenditures and key hiring, but the drop in the number of companies planning to increase spending is a cause for concern," adds Esch. "The time and money spent now to develop new products or services for your customers could translate to a strong competitive advantage when the current economic downturn ends. This is an opportunity to gain market share and leverage it for greater profitability in the next economic expansion."
Lack of Demand, Oil Prices Top List of Major Concerns
Fully three out of four Trendsetter CEOs cited concern over a lack of demand as the number one barrier to growth, up 11 points from last quarter and 19 points from last year's 56 percent. Oil/energy prices was the second-highest concern cited by 44 percent of surveyed companies (up from 34 percent last quarter and 25 percent one year ago); the availability of qualified workers was cited as a concern by only 40 percent of respondents (down from 45 percent last quarter and 53 percent one year ago). Concerns about profitability over the next 12 months increased to 38 percent (up from 32 percent last quarter and 26 percent last year).
Trendsetter Companies Plan Additions to Workforce
Although at a slower pace, 62 percent of Trendsetter companies still plan to add employees to their workforces over the next 12 months (down 6 points from the previous quarter and 14 points below a year ago). Only 5 percent of surveyed CEOs plan to reduce headcount, while 33 percent do not plan any changes.
Professionals/technicians are the most sought after new hires, with 40 percent of respondents planning to hire individuals in this field over the next 12 months (down 5 points from the previous quarter). Sales/marketing executives (20 percent) and administrative support (13 percent) were the second and third most cited job types. Overall, an increase of 5.9 percent is planned for the composite Trendsetter workforce - 4.4 percent for full-time employees and 1.5 percent FTE part-time or contract employees.
For more information about Barometer surveys, including recent economic trend data and topical issues, visit www.barometersurveys.com.
