Your shout for 2007

C&I Issue 1, 2007

At the end of 2006 we set you a challenge: to try to beat the analysts by letting us know your own thoughts and predictions for the industry for the year ahead. Nearly 300 of you responded, and here are the results. Compare and contrast these with what the experts are saying on pages 20 and 21.

So what are your predictions for the industry’s performance in general in 2007? The good news is that more than half of you are optimistic about the outlook for the industry this year, with only 5% of respondents believing that the industry will do poorly. The remaining 44% are uncertain, with one individual cautioning that ‘2006 has been very hard and I don’t see this changing overnight. I think there will be more of the same in 2007 and it will be hard for smaller companies to stay afloat without a genuine edge to pull in new business.’

Persistent threats
The biggest threat to business, 41% of you told us, are high and fluctuating energy prices. In 2006 the month-ahead wholesale price of gas – bought today for delivery throughout the next calendar month – was on average 204% higher than in 2002, according to consultancy firm Datamonitor. Wholesale gas prices fluctuated between 195 p/therm and 5p/therm in 2006, while ‘movements in the wholesale price of [electricity] power have been similarly dramatic,’ says analyst Paul Stewart. While prices are currently falling, thanks partly to 2006´s unseasonably warm winter, volatility looks set to remain, he cautions. Most traders, however, believe the wholesale prices of gas and electricity in the UK will fall in 2007, he continues, so the forecast may not be so gloomy as we fear.

Continued growth of Asian economies, and particularly India and China, was rated as the second biggest threat, highlighted by roughly a third of respondents who fear that downward pressure on prices and increased competitiveness may put a brake on profitability. Interestingly, many people also drew attention to the huge importance of industry personnel, with one respondent going so far as to say that the ‘biggest barrier to growth is the capacity and capability of the people in the business.’ Another commented that the ‘major UK challenge is still the quality and capability of leadership and management at the senior levels [and] the lack of recognition of the benefits of investing in the development of staff at all levels.’

The possibility of a downturn in the booming Asian economy is rated as the least important threat, with only 4% of respondents especially concerned about the risks to exports, while 11% are most concerned by geopolitical uncertainties including the continued tensions in the Middle East.

Opportunities abound
Looking on the more positive side, there are plenty of opportunities for growth. The biggest of these, according to 39% of respondents, is the prospect of increased globalisation and the demand from growing economies such as India and China. The past year has witnessed several Western players seeking to make gains in Asia by expanding their manufacturing activities in the region to capitalise on low labour, construction and raw materials costs, and it seems likely we can expect more of the same this year.

A further third of you, meanwhile, are confident that environmental issues will be a major force for improved profitability. The drive for greener and more energy efficient chemicals, materials and processes was rated as the second largest opportunity for growth in 2007, no doubt fuelled by concerns over global warming, high energy prices and increasing consumer awareness of environmental issues.

Not surprisingly, perhaps, few people saw much scope for further gains from continued restructuring and streamlining, with almost a third of respondents rating this the least important opportunity of those listed.

Continuous industry restructuring initiatives over the past few years have arguably already trimmed back most company excesses, leaving the industry much leaner and fitter as a result.

So what then of how your own businesses or industry sectors of interest will fare in 2007? Again it seems that most of you are reasonably optimistic. A sizable 58% majority predict your businesses will fare ‘moderately well’ this year, with another 38% saying you expect your businesses will do well and less than 5% fearing your firms will fare poorly. As one respondent commented: ‘As a small specialist business we can see a lot of customers coming back next year, and a few one-off big ones too on the horizon. Perhaps the year I feel pessimistic about the next year will be the year to retire!’

Fair weather forecast
All in all, the outlook seems reasonably bright. How accurate these predictions are remains to be seen, but we hope to bring you the results of our ‘competition’ next year – when we will compare whose version of events was closest to what actually happened. Wishing you all a happy, as well as a prosperous, 2007.

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