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The State Of The Global Economy: IACCM Report

January 27, 2010

SURVEY CONFIRMS IMPROVED GLOBAL TRADING CONDITIONS

Europe Continues To Lag Rest Of World

 The latest IACCM survey of the global economy confirms continuing improvement in business conditions, with all world regions now showing net positive sentiment.

In IACCM’s last quarterly survey (October 2009), only Asia-Pacific showed a higher percentage reporting improved conditions, versus a continued decline. That optimism was justified, with 38% now confirming that there has been an improvement over the last 60 days, versus 16% reporting a decline (net improvement 22%). The Americas has seen a similar shift in confidence, with a net 16% saying conditions have improved.

 Europe / Middle East / Africa is once again lagging the rest of the world. Although negative sentiment has fallen by 9% (to 27%), most of the transfer is to stabilization (+7%), rather than improvement (+2%). A similar lack of optimism affects expectations for improvement over the next 3 – 6 months, with just 49% in the EMEA region expecting that things will get better, compared with 61% in the Americas and 70% in Asia-Pacific.

 REDUCED FOCUS ON RENEGOTIATION, BUT PRICE PRESSURE REMAINS

The latest IACCM survey of the global economy was conducted in January 2010 with input from members in all world regions, representing an equal mix of buy-side (procurement) and sell-side (sales contracts / negotiators).  Participants reported a shift in the main focus for contract negotiations, with both sides recording a slight drop in the amount of renegotiation and a significant fall in specific demands for price reductions (down 10% overall). However, achieving price reductions remains the dominant issue for Procurement organizations and the fall in renegotiation may be because buyers are now far more active in seeking alternate sources of supply. This would in part account for the large increase in suppliers reporting growth in new business negotiations.

 Most – but not all – industries reported improving conditions. For some, the situation is evidently patchy. For example, the Electronics sector saw a major drop in those declaring stable conditions, with many citing improvement over the last 60 days. But the sector also recorded an increase in the number saying that conditions had become worse. Another sector facing tough conditions is the outsourcing / professional services industry and both Automotive and Transport / Logistics were significantly less bullish than in the October survey. This is largely explained by the cataclysmic drop these industries suffered early in 2009; by October, conditions were indeed massively improved, but the rate of recovery could not be sustained.

The top five industries in terms of globally improved business conditions are:

  1. Manufacturing / Process
  2. Electronics
  3. Engineering / Construction
  4. Healthcare / Pharmaceuticals
  5. Oil / Gas / Minerals / Utilities

 

AND WHAT ABOUT ETHICS?

Our final question in the survey relates to the subject of ethics. At the start of the recession, many commentators claimed that the world had changed forever and business leaders would be increasingly focused on ethical behavior. The October study dismissed that theory, showing that those who felt unethical behavior had increased outnumbered by a ratio of 4:1 those who felt they had improved.

So with the heat reducing and recovery on the way, has there been a shift in the way companies behave in their contract negotiations and management? The answer is ‘to a limited extent’. Sell-side participants report a 9% point reduction in unethical behavior. In large part, this is likely to be a reflection of the reduced pressure to renegotiate established contracts. Buyers are behaving better and, in the eyes of the sales contract specialist, the pressure on their organization to make over-commitment has reduced. However, the same is not true for Procurement, which has yet to record any significant change.

 A copy of the full survey results is available to IACCM members on request.

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