Finance Executives Ramping up Capital Spending, Acquisitions and R&D Activities

Optimism about economic expansion is on the rise among senior finance executives both around the world and in Hong Kong, reaching its highest level in four years, according to the new American Express / CFO Research Global Business & Spending Monitor.

With many companies sitting on large cash surpluses, global finance executives report that they will deploy more capital toward mergers and acquisitions as well as revenue drivers such as marketing, sales and customer service.

“Finance executives are finally moving away from budget cuts and opening up the company coffers to drive growth,” said Lisa Vehrenkamp, Senior Vice President and General Manager, Global Commercial Card, American Express, Japan, Asia Pacific & Australia. “We will see a thriving deal-making environment and greater spending to win and retain customers as businesses jockey for position in a recovering economy.”

The results come from the fourth annual American Express / CFO Research Global Business & Spending Monitor which surveyed 665 senior finance executives at large global companies across a wide range of industries in the United States, Canada, Latin America, Europe, Asia, and Australia. Company revenues ranged from $500 million to more than $20 billion. The research program, which included an online survey and interviews with senior finance executives, was completed in April 2011.

Today Looks Bright, Tomorrow Looks Brighter

Optimism has continued to increase among the world’s finance executives, with 79% of those in Hong Kong (compared to 75% of all respondents) reporting expectations for modest to strong economic expansion over the next 12 months.

 Around the globe, the outlook was brightest in Argentina, where 89% of finance executives expect growth in the coming year, followed by India (87%), Mexico (84%), Germany (83%) and Singapore (81%).

Finance executives also believe the pace of economic growth will pick up in the months ahead:

 The surveyed finance executives in Hong Kong expect a faster growth rate as 73% of them see economic growth accelerating in the second or third quarter of 2011, a significantly higher percentage than that of all respondents (54%). Among respondents in Hong Kong, more than half (55%) expect the growth to quicken in Q3.

 A total of 84% in Hong Kong expect growth to speed up by the end of the year, as compared to the overall 71%.

Respondents report a positive outlook for their own companies as well. More than three-quarters (76%) of surveyed executives from Hong Kong (compared to 72% of all respondents) anticipate top-line growth over the next 12 months, including 24% of them (compared to 17% of all respondents) who expect substantial revenue growth.

Seizing Opportunities, Striking Deals

Most surveyed finance executives (84% for Hong Kong and 84% of all respondents) say their companies have been experiencing strong cash flow over the past year, and a majority (71% for Hong Kong and 62% of all) report that they have been pursuing a deliberate cash preservation strategy. With many companies now sitting on large cash stockpiles, finance executives have plans to put this capital to work: globally more than half (52%) are retaining cash so they can seize investment opportunities more quickly in the future, while 40% in Hong Kong express the same intention.

Deal-making tops the list amongst all the respondents when it comes to how companies will spend their cash in the coming year. 84% of finance executives from Hong Kong, compared to 69% of all respondents expect to focus aggressively on acquisitions over the next 12 months. Capital spending, which typically includes outlays for items such as real estate and machinery, is also a top priority. 86% of respondents from Hong Kong and 65% of all respondents have aggressive investment plans for that category of spending over the next 12 months. Respondents also say their companies will use cash either somewhat or very aggressively in the next 12 months for each of the following:

• 85% of Hong Kong respondents (68% of all respondents) will use cash to expand operating activities and headcount.

• 81% of Hong Kong respondents (56% of all respondents) plan to invest in research and development (R&D) activities.

• 74% of Hong Kong respondents (63% of all respondents) aim to pay down debt.

But because of their difficult experiences during the recession, finance executives say companies will be more cautious when investing their savings:

 • 81% of respondents in Hong Kong (76% of all respondents) will conduct more rigorous due diligence of M&A opportunities.

• 66% of respondents in Hong Kong (71% of all respondents) will require a more detailed business case to increase spending on headcount and operating activities.

• 66% of respondents in Hong Kong (70% of all respondents) will analyze capital investments more fully.

“Lessons learned in the downturn are shaping today’s corporate spending strategies for the better,” said Vehrenkamp. “Finance executives are maintaining discipline and carefully weighing each investment. In areas ranging from M&A to headcount to service, companies are looking closely at the justification for spending, laying the foundation for more sustainable expansion.”

Spending to Drive Revenues

As economic prospects improve, finance executives expect to spend money to capitalize on the healthier business environment. 54% of all respondents and 46% of those in Hong Kong plan to invest more over the next 12 months on expanding market access through business development activities such as sales and marketing.

Globally, job growth will be strongest in sales, while in Hong Kong R&D will produce more hires – 48% of all respondents plan to increase their headcount in sales while 55% in Hong Kong plan to add R&D staff.

 Overall, more than three in ten respondents also expect headcount to increase in operations (37%), IT (34%), marketing (33%), R&D (33%) and customer service (32%).

 In Hong Kong, hiring is also expected to increase in sales (53%), human resources and other administration (42%), marketing (41%), information technology (37%), and customer service (32%).

Customer Service Revitalized

Having experienced the economic downturn, companies are motivated to nurture loyalty by improving the customer experience: around half of all surveyed finance executives (46% among all respondents and 52% in Hong Kong) plan to invest more in customer service over the next 12 months.

Companies are also paying closer attention to critical customer service dimensions such as:

• Customer satisfaction (Hong Kong: 40%, All respondents: 39%)

• Customer retention and loyalty (Hong Kong: 37%, All respondents: 39%)

• Effectiveness of customer service investments (Hong Kong: 32%; All respondents: 34%)

• Customer service performance (Hong Kong: 32%; All respondents: 33%)

On The Road Again

Recognizing the connection between business travel and revenue growth, more than two in five finance executives (41%) plan to invest more in travel this year – up from just 26% who reported plans for more business travel spending in 2010. Hong Kong has experienced a steadier trend as around half (47%) of the respondents have the same plan, roughly the same as the 51% a year ago.

 Overall, 65% of Hong Kong respondents (compared to 64% of all respondents) will spend the same or more on business travel in 2011.

 10% of respondents, both overall and in Hong Kong, expect travel spending to increase by 10% or more.

 More than one-third of Hong Kong respondents (37%; compared to 34% of all respondents) plan to increase spending on meetings with new or potential clients.

International travel will drive a larger proportion of spending growth, highlighting the interconnected global economy. 28% of all surveyed finance executives (29% for Hong Kong) plan to invest more in international travel, compared with 20% (16% for Hong Kong) who plan to invest more in domestic travel.

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