With unease over interest rates, plummeting oil prices and China’s stock market plunge, business leaders had to navigate many economic factors last year. Now, Criticaleye takes a look at the current global economy and asks leaders about their focus for the year ahead.
“Concerns about potential economic fragility in emerging markets commanded considerable attention in the second half of 2015. In particular, the possibility of slower growth in China as it moves to a consumer-led economy,” says Barry Naisbitt, Chief Economist at Santander UK.
The other headline-grabber was the US Federal Reserve’s decision to raise interest rates – the first increase since 2006. “Contrasted to this, the European Central Bank (ECB) is still undertaking quantitative easing and has cut deposit interest rates,” Barry comments.
“As 2015’s drop in inflation was due to the sharp fall in oil and other commodity prices – which started back in 2014 – unless those falls are repeated, it looks most likely that inflation will pick up again in 2016.”
Economic growth in both the US and UK is expected to continue, although not at a storming pace. “The IMF expects growth of 2.8 per cent in the US and 1.6 per cent in the Eurozone,” Barry notes.
When it comes to the UK, household earnings have increased due to the sharp fall in inflation, according to Barry. “If productivity growth picks up, then employment is likely to rise and result in a stronger overall economic position.”
Matthew Blagg, CEO at Criticaleye says all eyes are on China as it “addresses its structural issues” and he expects ripples to appear globally in commodity and oil prices.
Global wage inflation, and specifically the UK’s national living wage, is set to have a big impact on many industries, notes Matthew.
“Productivity will be hugely important. I think the tactical capability of leadership teams will be challenged. Organisations that haven’t aligned the strategy with capability will struggle,” he says. “Well-run businesses that get the balance right between income, reward, productivity and profit will do incredibly well.”
We spoke to a range of business leaders to find out what challenges and opportunities they expect to face this year:
Group Vice President, Safety, Sustainability & External Affairs
In 2015, the largest challenge was the steep and rapid decline in the price of oil. The challenges that’s brought have included a need for fairly quick action on everything from capital budgets to operating expenses. All indicators say that challenge will continue this year.
But this also brings an opportunity to catch our breaths and work on making the business more efficient. We’re figuring out how to do more with less; how to simplify processes. One thing we did last year was to integrate all of our management systems into a single common one. That allowed us to streamline and clarify what we do.
As a leader, it’s a great time to knock down organisational barriers and encourage the team to explore better ways of doing things. It’s easy to get duplication and overlap when a company grows quickly.
When I look back on my career, some of the biggest opportunities came during downturns as people get the opportunity to enhance or expand their skills.
The biggest opportunities for Cisco in the year ahead lie with cybersecurity and risk, the software-defined data centre and the Internet of Things (IoT).
The IoT is a big drive for Cisco because connecting things is the essence of what we do. Over the next five years, the number of connected devices a typical country might have is set to rise from tens of millions to tens of billions; this is happening faster in the UK than elsewhere. I also think we’re going to see big growth in the use of robots and autonomous systems.
In 2015, we acquired 11 companies and formed many great partnerships including one with Apple, optimising our networks for iPads and iPhones to function better in the work environment. There’s a recognition that while as consumers we’ve all got devices in our hands, when it comes to business we only use a fraction of their capability.
We’ll continue to look for opportunities in the year ahead and with $50 billion on the balance sheet in cash, we’ve got strong buying power in an interesting and evolving market.
TNS Asia Pacific
The ongoing challenge for the market research industry is how to capitalise on new data sources created by the digitalisation of business and media. Today, we are presented with exponentially increasing volumes of data from new sources and new skills are required to monetise the opportunity.
We’re witnessing a huge number of start-ups in the industry, primarily focussed on analytics and new media. Many of the skills we require have been built within start-ups, so we’re constantly looking at increasing the number of partnerships with capabilities that complement our strengths.
China will also continue to be a key driver of growth. Five years ago, our client base was heavily dominated by Western multinationals whereas today the majority of growth is coming from local Chinese firms.
We’ve seen a greater degree of stability in our Chinese business this past year. Previously, there were significant fluctuations within individual sectors that were booming and then plateauing, making it difficult to manage supply and demand.
Now we know demand is mainly driven by domestic consumption, so it’s easier to predict the direction of our business and the degree of investment needed.
Finsbury Food Group
In 2014, our UK speciality bakery Group made £256 million in sales, which was ahead of expectations. The food service market typically grows at about five per cent per annum compound, but our organic growth in 2014 was about six per cent and our food service growth was close to ten.
We made two strong acquisitions in 2015, which broadened our channel offering. We welcomed Marks & Spencer as a large customer, plus moved into the food service channel through our acquisition of Fletchers and into the coffee shop sector with the acquisition of Johnstone’s Cake Business.
As an employer of over 3,000 staff at eight UK sites, we’re having to get our heads around increases to the national living wage, pension contributions and the new apprenticeship tax, which could be half a per cent on your payroll.
As well as prioritising further strong growth, planning for that through automation, skill development and productivity improvements is going to be quite a key thrust for our sector and Group. To address this, we increased our capital spend from just over £7 million in 2015 to about £11 million for 2016.
I’m watching Europe like a hawk. Graze has been able to successfully internationalise into one country; of course it’s something we want to look at repeating. However, legislation seems to be getting more complicated. My worry is that there are more barriers to companies that want to transact over multiple territories.
Last year we launched in supermarkets including Sainsbury’s, Tesco, Asda and Waitrose. The roll out has been rapid. We’re also trialling in Odeon cinemas; that’s doing very well.
Being in more than one channel is an advantage. It’s more convenient for customers and sales have been strong. We’re absolutely looking to roll out to more retailers this year.
We’ve also made new senior hires. This links to our future vision for multi-channel expansion; we’re bringing in executives with skills to drive that. For instance, we’ve brought in someone from Expedia with a lot of experience in an international technology business.
Last year, in my roles as Chief Operating Officer at Equiniti and Non-Exec for Berendsen, technological advancements and digital channels featured continually as methods of competitive advantage, as well as potential threats and sources of industry disruption.
Financial services are at the very beginning of disrupting business models by using technology and digital channels to give customers what they really want. I expect to see a lot more of this in 2016.
More broadly, as the Internet of Things becomes a reality, I envisage lots more ‘machine-to-machine’ innovations and apps coming to market.
For investors 2015 was a mixture of confidence and cautiousness − capital was there but investors were looking for less risk and more certainty. So, while IPOs like Equiniti’s were successful and plentiful, multiples were more realistic than previous years and I expect that to continue in the year ahead.
We’re going through an exciting growth phase. Back in 2014, we bought 110 new practices on top of the 200 we had before, which we’ve been busy integrating. It’s gone very well and in 2015, we bought an additional 40 sites. We’re going to exceed £300 million turnover for 2015… which is a dramatic growth on prior years.
Branded dentistry is a growing global trend, so I’m certain we’ll internationalise at some point… but we’ll do that when we’ve consolidated more of the UK opportunities.
The world of healthcare is going digital and we see a lot of potential there for winning patients, building relationships and keeping them informed.
We offer very clear, national, single price points; the ability to book online and out of hours opening. I think the reason why we’re growing faster than the market is because we’ve led on this. The consumer feedback is very positive. It will challenge the market to consider these things.
By Mary-Anne Baldwin, Editor, Corporate and Dawn Murden, Editor, Advisory
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Join Mark Gregory, UK&I Chief Economist for EY, at our Executive Breakfast where he will open a discussion on this year’s key business challenges and opportunities.