Global Uncertainty Driving Canadian CFOs to Focus on Domestic Market
Annual study finds country's financial leaders are approaching 2016 with guarded optimism
Toronto - While the country's businesses remain focused on growth, most plan to tighten their belts, target their spending and focus domestically over the next year, according to Canadian executives participating in the ninth annual American Express/CFO Research Global Business & Spending Monitor.
More than half of the Canadian executives (62%) reported their revenues as higher than a year ago, but a sense of economic and political uncertainty is motivating companies to reduce exposure by taking an increased focus on domestic markets (47%) and increasing investment in risk management and security (47%). Canada also saw a 30 per cent jump the largest global increase in the number of companies reporting tightly controlled spending and investment in an effort to sustain profitability. These findings are based on a sampling of 651 senior finance and corporate executives located in North America (the United States and Canada), Europe, Latin America (including Mexico1), Asia and Australia.
"Canadian CFOs might not be quite as optimistic as recent years, but they remain laser-focused on making targeted investments in their most important business lines," says Paul Parisi, Vice President & General Manager, Global Corporate Payments, American Express Canada. "To preserve profitability and position themselves for future growth, many companies are also using 2016 to ensure their business processes are solid and items like cash flow are intact."
Guarded Optimism about Growth
While 63 per cent of Canadian executives still predict economic expansion over the next twelve months, the number is a slight drop from the 73 per cent reported last year. Additionally, one in five now predict economic contraction, compared to only three per cent last year.
In 2015, 70 per cent of executives reported the availability of capital as the top factor accelerating growth, but that number sagged to only 40 per cent this year, with 23 per cent of respondents now viewing availability of capital as a negative. Political changes in other countries (27%) and changes in currency exchange rates (20%) were also seen as negatively impacting growth, while executives view interest rates (45%) as a positive in helping them expand their business.
CFOs look to Optimize Cash Flow
Two-thirds (66%) of executives reported that optimizing cash flow will be more important in 2016 than it was last year, as Canadian companies look to obtain the necessary funding to secure and/or grow their business.
Compared to last year, companies also plan to invest less in mergers and acquisitions (36%) while spending more on sales and marketing activities (34%), adding capacity for production or service delivery (24%) and improving business intelligence and analytics (23%). Showing they're focused on the future, almost a third (31%) of executives also plan to increase spending on mobile technology.
Polar Views on Employment
As was the case in last year's survey, half of Canadian executives struggle to hire skilled or specialized workers and fill management positions, affecting their ability to meet performance goals. In the year ahead, 50 per cent of companies expect to offer flexible work schedules in order to attract and retain employees.
Conversely, 70 per cent of Canadian businesses plan to make greater use of temporary or contract workers in 2016, and almost two-thirds (60%) said that they expect non full-time employees to be central to, or an important part of, their business over the next two years.
A Global Outlook
Economic confidence remains high in North America, despite being lower than last year's high-water mark. With 63 per cent of executives expecting the country to see modest or substantial economic expansion over the next year, Canada is not as optimistic as the U.S. (73%) and below the global average of 65 per cent.
Looking overseas, the European outlook has remained steady but at a lower level, as countries there continue efforts to recover from the debt crisis first seen several years ago. Meanwhile, Latin America shows a very small gain in optimism over last year's results, which is driven largely by business confidence in Mexico. In contrast, the outlook for the Asia/Australia region is continuing a three-year slide, reflecting substantially worse outlooks for Singapore, Hong Kong, and China. The result is that the regional outlook for Asia/Australia has dipped lower than that for Europe for the first time in the survey's history.
"Confidence in Canada's economy has been shaken a bit by depressed oil prices, a change in the balance of political power and slower exports, but more than half of businesses are still reporting higher revenues than in 2015," says Parisi. "I think what we're seeing this year is guarded optimism as Canadian CFOs continue to increase their domestic spending and make strategic investments towards future growth."