Reviving the global economic engine.

AuthorHall, Mike
PositionPrivate companies

Growing international markets were disrupted this year as the most celebrated economic boom in a generation came to an abrupt end. With this shift also came a dramatic change in the plans and outlooks for many privately held businesses around the globe. Such companies--including entrepreneurs and family businesses -- comprise more than 98 percent of businesses worldwide.

The 16th annual Grant Thornton Internationa! Business Report 2008 takes an in-depth look at this sector. Based on interviews with 7,800 respondents from 34 economies, it provides a real-world trend analysis of expectations among privately held businesses.

The Results

Research conducted in the fourth quarter of 2007 started to find that the U.S. housing market crisis and ensuing credit crunch were creating a far less favorable economic backdrop for business operations. In addition, an inflationary threat from surging energy and food prices was beginning to emerge.

Not surprisingly, the survey showed businesses less optimistic than they were a year earlier as the global optimism/pessimism balance fell five percentage points to 40 percent.

This decline was marked most in East Asian economies with a 15 percentagepoint drop, followed by European Union countries, where optimism fell by 12 percentage points. (Interestingly, the North American Free Trade Agreement countries--including the United States--were more optimistic, at 22 percent, up from a record low of 14 percent last year.)

It should be noted, however, that this increase is still considered low by historic standards and took place after political uncertainties severely lowered optimism results last year.

Expectations regarding profitability, which reached a record high of 52 percent in 2007, fell to 41 percent, its lowest level since 2003, when the world economy was in the early stages of recovery from the dot.com slowdown. Accordingly, profitability is one of greatest challenges facing privately held companies during the coming months.

The Reality and Focus Areas

With costs rising for virtually all business segments and consumer demand on the decline, improving sales and profitability will be a challenge for many privately held businesses.

Thus, these companies must take measures to cope with the effects of easing demand and implement strategies to capitalize on the eventual global economic upturn (predicted by many economists to take place in 2010). Implementing such measures will not be easy, but for well-structured...

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