Confidence suffers amongst PHBs in tech sector
Research from the Grant Thornton International Business Report (IBR) reveals that privately held businesses (PHBs) in the technology sector are feeling much less confident regarding economic prospects for the year ahead than they were in 2008. A net balance of -7% said they were optimistic about the prospects for their country's economy in 2009 compared with +49% in 2008.
However, the technology sector is holding up well compared to the average across all sectors where optimism declined from a net balance of +40% in 2008 to -16% in 2009. Of the eight sectors featured in the IBR 2009 sector focus series, technology is second to hospitality (+2%) in terms of economic optimism and closely followed by financial services (-9%).
The greatest concerns driving the decline in confidence for businesses in the technology sector are the fall in consumer demand (cited by 38% of businesses) followed by shortage of business credit (15%) and increased cost of energy (14%).
The key driver of growth in the technology sector is business investment, which in turn is fuelled by firms' desire to upgrade and increase plant and machinery. Crucial in such investment decisions are the economic outlook and profit trends. Many businesses worldwide have cut spending on technology products and services in the current difficult climate, and have postponed updating outdated systems until the outlook brightens.
This is true of the industry in India where technology businesses have enjoyed a long period of sustained growth over the past few years. Says Gaurav Sahu from Grant Thornton India, "The Indian IT sector index showed annual growth of approximately 30% in the past five years with a decline of around 14% last year. This has been accompanied by a marked decline in application development and other discretionary IT projects, however, most IT companies in India are optimistic about the prospect of large contracts coming through in the next year or so."
In the US, however, the focus is on holding on to talent and investing in different areas of technology. "Non-labour costs are being cut to the bone in the US as businesses seek to keep technical staff amid a 10% fall in revenues. The 'clean tech/green tech' part of the industry will see significant investment as companies and governments seek to reduce their carbon footprint." said Michael Schamburger from Grant Thornton US.
Some tips for survival:
• cut down on expenses and conserve cash
• consider partnerships in new projects to avoid seeking external funding
• reduce reliance on North America by considering new markets such as Japan and Russia
• consider building presence in markets being boosted by government spending on IT.
The Grant Thornton International Business Report is an annual survey of the views of senior executives in privately held businesses all over the world. Launched in 1992 in nine European countries the report now surveys over 7,200 PHBs in 36 economies providing territory, regional and global trend data on the economic and commercial issues affecting a sector often described as the 'engine' of the world's economy. Data for eight key industry sectors will be available for the first time in 2009. The research is conducted by Experian Business Strategies Ltd. Grant Thornton International donates US$5 to UNICEF for every completed IBR questionnaire, a donation of over US$39,000 in 2008.
To find out more about the Grant Thornton International Business Report, please visit www.internationalbusinessreport.com
(To read the IBR 2009 sector report on the technology industry, please click on the link below.)