Wind of change

Wind of changeThe findings of Electronics Weekly’s business confidence survey, carried out in partnership with private equity group Schroder Ventures has confirmed a steady erosion of confidence over the last year. The survey questioned 100 senior executives in electronics design, manufacturing and services firms. A fall in sales, cuts in capital investment and a reduction in recruitment were common themes. Richard Wilson reports Hopes that the electronics industry was avoiding the business slowdown which is hitting the rest of the UK’s manufacturing industries have faded with the gloomy findings of our latest business confidence survey. The survey of 100 senior executives in electronics design, manufacturing and services firms has confirmed a steady erosion of business confidence over the last 12 months. With more firms experiencing a fall in sales, cuts in capital investment and a reduction in staff recruitment. This is a worrying message as it follows similarly downbeat projections from the CBI’s manufacturers survey and last month’s government figures which indicated that manufacturing output across the entire engineering sector (which includes industrial and aerospace as well as electronics) fell in the first three months of the year. It is the third is a series of six monthly surveys of business confidence amongst managers in the UK’s electronics sector. It includes large, small and medium-sized firms operating in the UK in electronics design, manufacturing and services sectors. Electronics Weekly in partnership with private equity group Schroder Ventures, commissioned researchers NOP to carry out this survey at a time when the industry is entering a period of uncertainty. Immediate factors, such as the high value of the pound, relatively high interest rates and the problems in south east Asian markets (traditionally import to electronics exporters) seem to making an impact on business performance and hence are hitting confidence levels. Over half of those questioned in the survey said that the value of sterling was the biggest threat to their businesses over the next 12 months. Easily replacing foreign competition as public enemy number one. Also the phenomenon of “Asian Flu” has appeared, and duly well over half of respondents expressed a degree of concern over its impact on their business. The implication of this is that 27 per cent of executives expect the prices of good they sell to come under pressure and fall. While a similar number expect this to be offset in part by a fall in the cost of materials, as many as 15 per cent of managers expect orders in their key markets to fall over the next three months. This represents a fall in confidence compared with a year ago when in a more buoyant sector just two per cent of those questioned anticipated a fall in orders. At that time confidence levels were riding high in the electronics sector and three-quarters of executives questioned anticipated that orders would rise. However, while confidence levels are certainly down it is important to realise that they are not plummeting uncontrollably. While the number of managers expecting order levels to fall is up, it still only represents 15 per cent of the sample. There are still 56 per cent of those questioned in the survey predicting an increase in order levels over the next three months. While this is down on the 75 per cent expressing the same view 12 months ago and 64 per cent at Christmas, it still represents well over half of the sample. This is not indicative of an industry which running off the edge of a cliff. The one worrying note of uncertainty about future business prospects seems to be the continuing high value of sterling. An increasing tendency amongst managers to talk of cuts in investment and recruitment plans is a clear indication that some firms are tackling their own business efficiencies. This can only be viewed as a response to the high value of the pound and its affect on export business. How wide and deep those cuts are required to go will only become apparent as the year moves on. But the indications from this present survey are not encouraging. Confidence levels may have fallen in the last three months, but the industry was in a very buoyant state to start with, so absolute levels of confidence, if that is a legitimate measure, are still relatively high. In May 1997, the date of the first survey, 57 per cent of respondents expressed confidence about future business prospects. Today that figure has fallen, but only to 44 per cent . So almost half of those 100 executives questioned are still optimistic about the future of their businesses. Which is an impressive figure given the present air of gloom that seems to be pervading the UK’s manufacturing sector as a whole. It is also interesting to look at the same “future” confidence figure recorded in the survey six months ago. That figure was only marginally better than the present one, with just 45 per cent of managers expressing optimism. The optimistic interpretation is to say that the biggest fall in confidence happened in the second half of 1997. This may indicate that uncertainty over the future peaked around Christmas and that the outlook for the second half of the year may not be anticipated to be as troublesome as the last six months. If so then it is just possible that the electronics sector will be more robust to the damaging factors that threatening the UK’s manufacturing base as a whole. On that only time will tell. Other interesting statistics
Over 75 per cent of electronics executives questioned said that the first 12 months of Tony Blair’s “New Labour” government had made absolutely no difference to their business prospects. Over 73 per cent of those questioned were similarly unimpressed by tax changes in Gordon Brown’s last Budget, which were designed to help the small and medium sized firms strongly represented in the survey sample. 53 per cent of sample said prices in the target market were falling, while just 15 per cent said they were rising. This shows virtually no change on the situation 12 months ago. A third of the sample expects to spend more on staff training over the next three months. While only 8 per cent expect to spend less. 37 per cent say they will increase R&Dinvestment, compared with just 5 per cent who expect to cut it. Good news for engineers as wage bills are expected to rise, with 32 per cent of managers believing inflationary pressures will drive them upwards. No one anticipated a fall in wage costs. Inflation is seen as less of a threat now than it was 12 months ago. Only 23 per cent of executives expect the emergence of a single European currency to benefit their business. 44 per cent of managers are very confident about the future prospects of their business. 24 per cent of respondents showed no concern over the Asian financial crisis. Over half of managers expressed some level of concern over Year 2000 compliance. 50 per cent of managers said that they had only been working towards Year 2000 compliance in the last 12 months. While 29 per cent said Year 2000 work began more than 18 months ago. 56 per cent expect the bill for Year 2000 compliance to be less than ?50,000. While just 15 per cent expect it to cost their firms over ?100,000. Surprisingly, 19 per cent of managers questioned had no idea how much Year 2000 compliance would cost their organisations.

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