Ernst and Young research shows a challenging and rapidly changing business environment (page 2 of 2)

Like their international counterparts, it's crucial that Middle Eastern companies proactively look at models that don't just sustain or tide over during crises but can also be flexible enough to capitalize during adjustments in the economy."

"Clearly the best prepared were those that practised judicious financial discipline during buoyant phases. The windfall along with the checks and balances in their systems would help them cushion the effect in the short to medium term," he adds

Corporates brace for tougher times ahead

Surveyed companies were also asked to name their top strategic priorities over the next 12 months. The vast majority highlighted protecting assets, performance improvement and restructuring their business. In terms of cash management two thirds of those surveyed were considering a top down review of current cash management and of cash flows, half building working capital measures into performance objectives of management and 36% considering possible assets that can be turned into cash.

Alaeddin added, "Current market sentiments in the Middle East seem to indicate that firms in the region have significantly scaled back on allocations for non-core and support functions. Effects of the downturn may not be as pervasive as in markets elsewhere, but it has prompted organizations to relook at things critically. Let's look at the bright side of this crisis; we will end up with stronger and better organizations as a result of looking critically at everything they do."

And where will they be looking to save cash in the future?

There were some fairly consistent messages around where companies will continue to look for savings. Corporates said they expected significant or reasonable savings in their supply chain operations (58%), their sales and marketing (42%), Operations (56%) and IT functions (43%).

In strategic terms 40% of Global companies and 53% of European ones said they were actively considering selling non-core or non-performing business, an increased use of shared services centre (27%), increased use of outsourcing (31%), making strategic alliances (30%) and moving operations to lower cost locations (31%). Companies particularly saw an increased role for outsourcing for their IT, Logistics and Human Resources.

This would potentially imply a position of advantage for markets like India and the region which offer significant differentials in the costs associated with the above. However a reasonable proportion of corporates saw the recession as an opportunity to expand with 34% globally and 38% in Europe thinking of making strategic acquisitions.

Emerging markets and growth

Whilst most developed markets were either perceived as stagnant or in decline companies still saw major opportunities in emerging markets. Some 18% of companies expect significant growth still in emerging markets in the near future; the majority (57%) expect growth to continue but a slower pace than over the last two years and 25% growth to slow significantly.

Alaeddin says, "Current developments point to a firming up of expected growth levels in the Middle East. With most governments and economic blocs elsewhere in the world working on bail out mechanisms for troubled institutions, GCC governments have signalled significant expenditure plans for 2009, especially on infrastructure and enhancing capacities in the energy sectors. This is expected to provide steady stimulus to the economy and play a prominent role in kick starting the engines of growth in the region."

Real estate and leisure, which were key components that fuelled the region's growth trajectory, are currently experiencing a slow down. Most analysts seem to agree that the current trough is a short to medium term phenomenon while the long term outlook remains positive. The pace may have scaled down compared to the same time last year but is expected to slowly move up in the coming months ahead.

Additionally, relatively lenient regulation and tax regimes will now be seen as a major draw as European and US business environments tighten under the pressure of the recession.

Mark Otty adds, "Companies are completely right to still believe in the opportunities of the emerging markets. To put into context a recent Ernst & Young sponsored report highlighted that Brazil Russia, India and China will contribute 40% of global economic growth between 2009 and 2020."