Adjusting to the new business climate

The May release of the Sage SME Business Sentiment Index 2011 highlighted a shift in the focus of Australia’s manufacturers.  Where rising prices and other financially-oriented issues dominated concerns in 2010, new challenges are emerging as manufacturers adjust to a lower-growth business environment. Alan Osrin, Managing Director, Sage Software Australia, explains. 

The Sage SME Business Sentiment Index 2011 is a comprehensive research study involving more than 600 business owners and decision makers across all business sizes and industries. It was commissioned by Sage because we wanted to better understand the issues most affecting small to medium businesses today.  In particular, the study sought to identify current business confidence levels, attitudes to business and employment issues, investment priorities, major business challenges of the past 12 months and anticipated challenges for the year ahead.

What we found is that across all industries there’s a slightly more upbeat tone to business today compared to that of a year ago.  The majority of business owners and decision makers feel that they are performing better now than in 2010 but there’s still a note of caution with confidence in the economy remaining lukewarm.  As a result businesses report only a marginal increase in confidence for the year ahead.  

When we drilled down to look at manufacturer only responses however, a different picture emerged. While almost four in ten manufacturers feel that business is performing better now than in 2010 and just over 1 in ten believe it is worse, almost half say they feel no difference in confidence at all. This is possibly a result of the manufacturing industry’s particular cross – an anticipated continuing strong Australian dollar impacting on competitiveness. It may also be a reaction to the uncertainty plaguing international markets but whatever the reason, it’s a sign that manufacturers are realistic about their situation. We’ve entered a time of low-and-gradual economic growth and manufacturers, it appears, are planning accordingly. 

2010 vs 2011 

2010 was a year defined by financial concerns for Australia’s manufacturers, as evidenced by these findings from the Sage SME Business Sentiment Index 2011:

1. more than six in ten manufacturers nominated rising costs as their biggest challenge of the past twelve months compared to 47% of the total business population; 

2. more than seven in ten manufacturers agree strongly that during this period, costs went up but revenues didn’t rise by the same margin; 

3. almost half of the  manufacturers and just 39% of all other businesses, believe rising costs will continue to be an issue in 2011; 

4. just under half of all manufacturers reported dealing with cash flow management issues; 

Curiously, despite the focus on money and finance, only 3% of manufacturers reported experiencing funding challenges during 2010, compared to one quarter of businesses across all sectors. 

By contrast, in 2011, manufacturers are preparing for a new set of challenges. Rising costs still appear on the list but they are decreasing in importance and sit alongside new issues such as maintaining or growing revenue, and gaining new customers.  Manufacturers are looking forward and considering the best ways to grow their business given the confines of the market. 

Cash flow, last year’s second biggest business challenge, has dropped to fourth place, coming in on an equal footing with concern regarding recruitment of new employees. Manufacturers have been quick to realise that in a tightly-fought market, having access to the right skills is essential.   

Meeting the challenges 

So what are the likely focuses for manufacturers in the coming 12 months?  Based on their professed investment desires, sales and efficiency will be key.  

To satisfy the desire to gain new customers, twice as many manufacturers as all other businesses say they would like to invest more money in sales if only they had the budget. One quarter of manufacturers would also like to invest in export markets. Just over a third of manufacturers would like to invest more in marketing.  It suggests a renewed competitive spirit after a year of focusing internally on financial matters. 

The search for new efficiencies can be seen in the remaining two key investment priorities: infrastructure/premises and technology. It makes a lot of sense.  If expectations of no- or slow-  industry growth are correct, and with funding concerns receding, now is an ideal time to make changes, update business systems and implement new, more efficient processes.  

It is unarguable that the business environment has changed dramatically in the past few years and that manufacturers have had to respond quickly without always knowing where those changes may lead.

What is heartening is the energy, resilience and in some instances, optimism expressed by those manufacturers who participated in the Sage SME Business Sentiment Index.  The next 12 months are going to be interesting but it’s clear that many manufacturers have already factored in the challenges and are well-prepared to deal with whatever the market may bring. 

Alan Osrin is Managing Director, Sage Software Australia.

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