Davos - Business leaders in Davos have plenty to worry
about, from the eurozone to global geopolitical upheavals, but at heart their
problem is simple: how to find new revenue in a low-growth world.
Half a decade on from the financial crisis, investors want
to see earnings driven by more than just cost cutting. Their focus now is on a
return to sales growth, which presents the world's largest corporations with a
$5 trillion challenge.
That is the amount of extra revenue the 1 200 top global
companies need to find each year simply to meet analysts' expectations,
according to consulting firm Accenture.
"The trouble is that stock markets' expectations of the
ability of companies to grow far exceeds the underlying macroeconomic growth
rates," said Mark Spelman, Accenture's global head of strategy.
"So companies need to get beyond just thinking about
emerging markets and rising middle classes and start to look at those segments
where you are seeing significant consumer change, because there is a lot of
latent growth in those segments."
Increasingly, companies are seeking specific pockets of
opportunity for sales growth. They remain cautious about major new investments,
however, with confidence among managers in the near-term outlook for their
businesses still weak.
The annual PricewaterhouseCoopers survey of more than 1 300
chief executives worldwide found only 36% were "very confident" of
their firm's prospects for revenue growth in the next 12 months, down from 40%
a year ago.
Macro vs micro mismatch
The mismatch between the sputtering global market for goods
and services predicted by macroeconomists and the lofty numbers forecast by
analysts following individual companies is striking.
In all regions, analysts' forecasts for company revenue
growth are well above prevailing views on underlying economies.
While the World Bank last week cut its 2013 global growth
forecast to 2.4% - and just 1.3% in advanced economies - analysts see company
revenues expanding by 7.8% in Asia outside Japan, 3.8% in the United States and
2.4 in the eurozone, according Thomson Reuters data.
And consensus forecasts call for 2014 sales to pick up even
further, especially in the US, where a recovery, it is hoped, could be spurred
by rapid growth in shale oil and gas supplies.
Companies in the middle of the current hoped-for recovery
are wary, as reflected in results from two of Europe's biggest manufacturers on
Siemens warned that industrial demand was weakening, while
Unilever said economic conditions were "tough", though it had
countered this by faster innovation in its products.
Longer term, CEOs are more optimistic, but there are bound
to be questions over delivery, given that only around a tenth of companies in
the S&P Global 1200 index have seen revenue growth outstrip economic growth
in each of the past three years.
In the fight to buck the slow-growth trend, nimbleness is
key as companies move away from broad-based bets to more targeted strategies
that they hope will win market share.
"Uncertainty is itself becoming more of a
certainty," said Jonas Prising, who heads Manpower's operations in the
Americas and southern Europe. "In this new environment, strategic
flexibility becomes all important."
Mergers and acquisitions would be one way for corporations
to buy growth - but CEOs remain reluctant to undertake large-scale deals,
despite cheap credit and relatively low valuations.
In fact, the focus of CEOs on M&A is at the lowest level
in six years, according to the executives surveyed by PwC.
"M&A activity is going to be very focused, very
targeted and certainly nowhere near the levels that we saw over the past
several years," said PwC International chairperson Dennis Nally.
The calamitous nature of some bold deals from the recent
past, such as those of miner Rio Tinto, whose CEO was sacked last week, will do
nothing to encourage boldness by other business leaders.
An important focus for companies now is on smarter ways to
serve sections of their existing markets, while placing selective bets on new
For many, this involves embracing digital technology to keep
pace with changes in how consumers buy goods and services - from shifting more
resources to online sales to greater use of new tools to analyse behaviour.
But new opportunities come in many guises. Luxury goods
companies, for example, are aggressively growing their retail networks,
especially flagship stores, particularly in growth markets, while companies in
many sectors are chasing new service contracts that can lock in profits for
Geography, too, remains a vital lever for managers to pull
as they chase new sales. For Spanish companies struggling with a dire home
market, Latin America has become a prime target because of their language
advantage, helping the likes of telecoms giant Telefonica.
Others are betting that the US market will indeed surge back
this year, including German carmaker BMW and fashion house Hugo Boss.
With $5 trillion to find, the world's business leaders can
afford to leave no stone unturned.