FUELED BY WORRY
The September 2005 Global CFO Business Outlook Survey shows a decline in confidence.
By Jennifer Lee

A tightening pressure on capital resources has tempered the region’s CFOs’ long-running optimism about Asia’s economy. Torn between the need to increase spending in order to counter global competition, and higher operating costs due to rising prices for fuel and other commodities, CFOs plan to raise prices slightly before the end of the year. On the other hand, CFOs anticipate earnings to remain steady, and are cautiously optimistic about the future financial prospects for their companies.

These are some of the findings of the September 2005 Global CFO Business Outlook Survey by Duke University and the CFO Asia family of magazines, which asks CFOs from a broad range of companies around the globe about their economic projections. The survey concluded August 28 with responses from nearly 1,600 CFOs, including 145 from Asia, 374 from the US, and 1,066 from Europe.

Since the survey began four years ago, Asian CFOs have been the most optimistic of the three regions about their own economies. This quarter too, that remains unchanged. But the rising cost of fuel and the ever-increasing pressure of global competition are eroding that confidence, which stands marginally lower this quarter. Fifty-five percent of the Asian respondents declared their outlook for the region to be optimistic, compared with 57% last quarter and 70% the quarter before.

The steady decline in confidence can largely be attributed to the rising cost of fuel, which, as the manufacturer to the world, hits Asia particularly hard. The survey asked CFOs in the region to choose the top three items, from a list of 15, that are concerns for their companies. Last quarter, 38% of respondents said they were concerned about high fuel prices, with 34% citing increased global competition. This quarter, with fuel prices continually hitting record highs, half of the region’s finance execs are worried about high fuel prices. But they are also more worried about increasing global competition, as cited by 39% of this quarter’s respondents. Salaries and wages were the third-most important concern facing CFOs in Asia. One reason: as the market steadily improves, there is salary inflation even for basic jobs.

Despite their worries, Asia’s CFOs are cautiously optimistic about their companies’ financial prospects. Nearly 60% are more optimistic than last quarter, while 21% reported that they are less optimistic. Seven of ten expect stronger earnings in the coming 12 months, which they expect to rise by 8.4% on average.

CFOs in Asia will be spending more on wages and salaries, technology, and capex in the coming year. More than 80% of CFOs plan to spend an average of 15% more on technology than in the last 12 months. Nearly 80% percent of CFOs will have more capital expenditure, spending, on average, 12% more than in the previous year, and 69% will spend around 7% more on advertising and marketing.