"Right now, these CEOs are an optimistic group," said Maria Pinelli, Americas Director, Strategic Growth Markets, Ernst & Young LLP. "They have faith in their own companies and the US market. Their confidence will serve as the growth engine to revitalize the economy."
Through September and mid-October, respondents cited the credit crunch (61%) and market volatility (54%) as having the largest effect on corporate growth. Infrastructure challenges - people, processes and technology - took a backseat (43%) to these external market drivers. Recent market turmoil has decreased respondents' access to capital, whether it be credit or from private equity (33%). Respondents are also tightening expenses (54%), while another 29% declared that the market's volatility delayed a merger or acquisition.
"Right now, CEOs are looking for US economic stability to drive growth," said Pinelli. "However, over the next year, leaders of high-growth companies are looking to mergers and acquisitions for opportunities."
According to the survey, 64% of respondents expect to acquire a company in the next 12 months, 17% are planning a merger and 51% anticipate a strategic alliance. Only seven percent expect to sell the company. Also, 49% of respondents feel that mergers and acquisitions will be their most likely source of growth in the next 12 months, followed by new product launches (42%). That doesn't mean new products will wait for corporate deals, however. In fact, 71% of those surveyed anticipate rolling out a new product or service in the next 12 months.
In the next six months, however, US economic stability reigns as the key determinant of growth (cited by 54% of respondents), followed by access to capital and new product launches at 40% each. In fact, M&A ranks lower than innovation for short-term growth factors.
The Global Frontier
Over half of the Russell 2000 companies surveyed (52%) see the most opportunity for growth within the US market, followed by Europe (13%), South America (11%) and China (9%). Three-quarters of respondents generate at least some revenue outside of the US.
Most competitive pressure (79%) comes from domestic businesses. If they have seen increased competition from foreign companies, it has come primarily from Europe (71%) and China (34%).
Over the past year, almost half (46%) of respondents have seen increased interest in their business from foreign investors. With that in mind, the majority (72%) are taking steps toward increasing their current understanding of International Financial Reporting Standards (IFRS), though only 23% see the adoption as helping their company compete globally.
Respondents ranked the top five barriers to the US competing globally as: the regulatory environment (48%), the global credit crunch (47%), the US tax code (39%), rising energy costs (31%) and the weak US dollar (29%). Forty-three percent were unsure whether the incoming President will have a significant positive effect on the US economy.
Corporate Responsibility
Russell 2000 companies make significant contributions to the economy and society. According to the survey, 48% had annual budgets from $100K or more dedicated to charity. In addition, 38% consider climate change important or somewhat important to their company, and 67% say executives and boards understand climate change risk and legislation, though most find it hard to quantify.
