Monday, September 04, 2006

McKinsey Survey of Global Executive Confidence

  • The confidence of executives in the global economy has fallen significantly in the past three months, according to a McKinsey survey.

  • Executives in India reported the biggest decrease: nearly 28 percent.

  • Yet they and a slim plurality of executives around the world still plan to hire additional employees in the next six months.

Highlights from the McKinsey Global Survey of Executive Confidence paints a rather gloomier picture this year, compared to the one 6 months ago. The fall in confidence is common worldwide, though in relative terms it is the highest in India. I shall see this more as a reflection of the worldwide trend than an independent development, and note that this is only in relative terms, 73% of Indian executives surveyed intend to expand their labour force in the next 6 months, highest worldwide, elsewhere in the same survey.

The fact that 2007 may turn out to be gloomier than 2006 can be ascribed to an old disease, inflation : the beast raises its head once again after a tame decade. This happens primarily as a follow-up of the global energy price rise, but also because the effects of Chinese and Indian integration in the global economy is firmly bedded in and approaches some sort of maturity, its downward effects on consumer prices and wages start to weaken. It may not fade away completely, but the relative effect of these will continue to weaken, putting pressure on inflation figures.

For a start, this may lead to sustained inflation – like the one noticed in Britain already – and force the central banks to raise the interest rates significantly. This may lead to a slump in house buying, and consequently on all consumer expenditure, setting in a deep recession worldwide. The effects on Indian economy can be quite devastating, now that we are far more exposed to global fluctuations than ever before.

This is not the only scenario though, and by no means, this is inevitable. But the key thing to remember is that it is likely. Increasingly, as the Business Leaders seem to know already. The solution is not to turn inward – because that will accentuate the disaster by adding a political dimension - but prepare ourselves for a few hard years ahead.

Business strategies that survived recessions, historically, have always been focused on the basics – innovation, good salesmanship, new ideas in value building and customer service etc – seen businesses through. Each depression cycle has seen a rise in public investment, and without being Keynesian, one knows that this will come. Lot of this investment will happen in infrastructure; physical as well as intellectual, things like education and skills, and businesses in these areas would stand to gain.

So, not everything is bleak, but times may get tougher, and need a set of new business strategies. Hopefully, Indian businesses will up their game and be ready for this new reality as and when it hits us.

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