The region’s business community is in upbeat form, anticipating a more prosperous twelve months than the last, despite grave concerns about how to sustain growth, manage costs and reduce the relentless pressure on their margins, according to a new survey by KPMG.
77% of businesses surveyed by KPMG as part of the South West Business Instinct Survey* said they expected to see both turnover and profitability increase over the next year. However, the majority said they do not expect to recruit to fulfil these ambitions, with almost 59% saying they expected their workforce to remain the same or decrease.
Phil Cotton, south region chairman at KPMG said: “It’s great to see so many businesses in the South West forecasting growth for the year ahead – what a welcome change from what has seemed like a never ending flow of gloomy news.
“This local optimism appears to have its roots in the strong performances achieved by businesses last year, when a high percentage of those surveyed said they’d boosted their turnover and profitability. These strong foundations should give us much more confidence that the growth forecasted will be delivered.
“However I think businesses are being too optimistic when it comes to delivering this growth using their current staff levels. I think most businesses will find they need to recruit to meet increased demand and these increased wage bills will nibble away at profit margins. Last year 57% of companies increased their workforce in order to deliver their growth ambitions and I would expect to see a similar number needing to make the same investment this year.”
Cost control and reduction, achieving sustainable growth and countering margin erosion were named by businesses as the top three challenges facing their business in the next year. “These challenges are a direct consequence of the low growth economic environment, and the wider issues that austerity brings,” says Cotton. “Yes, businesses need to keep a keen eye on costs, but they must balance cost reduction against their ambitions to grow. If they constrain costs too much and they will be unable to capitalise on any growth opportunities that present themselves as the UK economy recovers.”
Almost 50% of those surveyed said they were not planning to export overseas. 24% said they were choosing to focus on the UK market and 25% said they didn’t believe the products or services they offered could be exported.
Cotton said this trend could potentially leave South West businesses vulnerable to overseas competition: “The high percentage of businesses relying solely on the domestic market is somewhat surprising, particularly given the stagnation in the UK and wider EU economy. Whilst international expansion is daunting, companies can consider a phased approach, a joint venture or a strategic alliance before committing to outright acquisitions.
“They should also be aware of the increased flow of inward investment from fast growing and developed economies into the UK, attracted by our talented people and a competitive tax rate. This trend brings with it more competition; some may be vulnerable to foreign companies impinging on their market share. “
