Magazine article Management Today

Bumby Ride for Britain

Magazine article Management Today

Bumby Ride for Britain

Article excerpt

When you drive along a motorway late at night the red lights of cars ahead often seem to blur. It becomes difficult to judge whether they are moving or stationary. That is the view most chief executives of manufacturing companies have of the industrial field as it moves into 1990.

There seems little doubt that compared to the booming years since 1985 the next year will be decidedly hard going. Having evoked memories of the late 1970s to describe this year's strikes as a summer of discontent, some commentators may be inclined to regard the coming year as a minor version of the recession of the early 1980s.

It is unlikely to be as simple as that. The car market, for instance, is bound to decline. But it will do so from an historic peak. Investment will be underpinned by Nissan's expansion and Toyota's arrival, both companies attracted by the lure of 1992. The old rules of thumb which meant a clear line could be drawn between the state of the UK economy and the performance of British-based manufacturing may well have lost some of their predictive power with increasing internationalisation of business. These conflicting currents show up in Management Today's survey of chief executives and finance directors from a cross section of companies.

There is a consensus that the economy is going to land next year, possibly with a bump. About half the respondents (48%) predict a hard landing, while only 40% expect a soft landing. These terms are extremely vague. But it is a clear indication that executives are generally pessimistic about the outlook for the economy over the next year.

Is this just a reflection of a spreading gloom about growth prospects for 1990 or does it flow from an analysis of their companies' immediate prospects? Here the evidence of the poll is ambivalent. Read one way it seems to suggest that investment will fall in line with slower growth. About a quarter of the respondents expect to cut back on investment 24%), while only 10% expect to spend more on new buildings and machinery. On the CBI's normal measure of investment intentions - subtracting those who expect to invest more, from those who intend to invest less - this yields a negative balance of 14%. That is far worse than the results of the CBI's October quarterly trends survey, which found that 3% of companies were planning to cut back on investment: the worst result since January 1983. So the Management Today poll may mark a deterioration in the investment outlook.

However, the most striking result is that 64% of companies think slower growth will have no effect on their investment plans. Manufacturing investment has picked up in the last few years. Thus these companies' unchanged intentions may mark a continued drive to invest ahead of 1992 and the single European market.

This may well be the case for large companies which have internationalised their operations in recent years. According to a recent OECD report on industrial policy, outward investment from the UK rose from about [British Pound]55 billion in the 1970s to more than [British Pound]120 billion between 1981 and 1988. Such international companies may need to provide research and development to overseas subsidiaries. Investment in the UK may be bolstered by stronger growth elsewhere, especially in Europe.

The relative robustness of companies' plans for the next year, compared with their views of the prospects for the economy as a whole, is borne out by plans to break into new markets. Only 14% of companies said they would delay plans to break into new markets because of slower growth. …

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