CFOs Swing to Safe Markets

- Economic Crisis Cuts Appetite for Risk -

BRUSSELS--(BUSINESS WIRE)--BDO’s annual survey of over 1,000 CFOs from mid-sized companies planning foreign expansion has revealed that businesses have become more cautious, with 66 percent planning to significantly increase investment in safe haven markets – including the BRICs (Brazil, Russia, India, China), United States, United Kingdom and Germany – rather than taking a gamble on riskier destinations. Although six in ten (62%) respondents admit they are relying on international business to drive growth, companies are adopting a more risk-averse approach as a result of increasing macroeconomic worries.

“Our survey shows that the risk-reward dynamic is changing as ambitious CFOs face greater risk for the same reward. CFOs from mid-sized companies are having to stick to what they know in their approach to overseas investment, rather than take bigger risks that could lead to greater returns.”

China Most Attractive

Consequently, the BRICs are seeing a boom in investment, with nearly half (45%) of the CFOs interviewed now investing in or planning to enter these markets, compared to three out of ten (29%) in 2011. The findings indicate that the BRICs are now perceived as established – rather than emerging – investment markets. China remains the number one investment destination, topping the BDO Global Opportunity Index for the third year running. Better than two-thirds (69%) of respondents cite China’s market size as a key advantage, while more than a third (37%) say they are attracted by its cheap labor.

The U.S., U.K. and Germany all secure top-10 spots as sought-after markets for international expansion, with the U.S. in second, Germany in fifth and the U.K. in seventh place. Intention to invest in these three markets has also seen a collective rise, with over a third (36%) planning investment here in 2012, compared with only a quarter (26%) in 2011.

Southern Europe now High Risk

There appears to be no light at the end of the tunnel for Southern Europe. Traditionally a safe investment, CFOs now see parts of Europe as risky as the politically unstable countries of the Middle East. Spain is perceived as a riskier investment destination than Egypt; likewise, Greece is seen as more risky than Libya and Syria.

As a result of this flight to safety, other traditionally established markets, including France and Japan, have also suffered significant fallings in 2012’s BDO Global Opportunity Index. France drops from the seventh most attractive country for investment to thirteenth, while Japan comes in at twenty-seventh; it was previously ranked seventeenth. Cultural and language issues are cited as significant barriers to success in both markets, with a number of CFOs commenting that the change of government in France has created uncertainty, adding to it being perceived as a less attractive investment destination.

“CFOs remain under pressure to look abroad to grow their businesses, but this year currency fluctuations and geopolitical risks have replaced red tape and bureaucracy as the top threats to successful foreign expansion,” said Martin van Roekel, CEO of BDO. “Our survey shows that the risk-reward dynamic is changing as ambitious CFOs face greater risk for the same reward. CFOs from mid-sized companies are having to stick to what they know in their approach to overseas investment, rather than take bigger risks that could lead to greater returns.”

BDO’s survey also found that the appetite for risk varies considerably from country to country, with Russian, Chinese and Japanese CFOs most likely to gamble on growth. Six out of ten Russian firms (60%) and nearly half of Chinese and Japanese respondents (46% and 44% respectively) are prepared to take major risks. This compares to just 18 percent of CFOs in Brazil and 22 percent in France.

“These companies are the growth engine of global trade and their investment plans are a real boost for what our survey identifies as the ‘big seven’ – the BRICs plus the U.S., U.K. and Germany. However, these markets aren’t the only choice for firms looking to expand abroad. Investment overseas continues to present significant challenges, but a tailored market-by-market approach will increase the likelihood of success, even in riskier markets,” van Roekel added.

About the Survey

The BDO Ambition Survey conducted by Strategy One interviewed 1,050 CFOs from businesses turning over between $50m and US $2bn in 14 countries: Australia, Brazil, Canada, China, France, Germany, India, Japan, Netherlands, Russia, Saudi Arabia, South Africa, UK and USA.

Other key findings from the report include:

• CFOs in 2012 are finding it more difficult to conduct business abroad than three years ago. Reasons cited are the poor economic situation (31%), increased regulation (25%) and greater competition (22%).
• Despite the challenges faced, CFOs have reported an average increase of 9 percent in their company’s international revenues over the past financial year, with Indian and Russian companies seeing the highest average overseas revenues (18% and 17% respectively).
• The mood of CFOs in 2012 is more subdued than 2011 - only 24 percent of CFOs are very optimistic about their expansion plans, compared to 49 percent in 2011.
• More than two thirds of CFOs see customer service as a vital element for international success, with Brazilian, British and South African companies ranking this most highly
• Almost half (46%) of CFOs cited securing good advice from reliable people on the ground as their chief insight for successful international expansion.

About BDO

Service provision within the international BDO network of independent member firms (‘the BDO network’) is coordinated by Brussels Worldwide Services BVBA, a limited liability company incorporated in Belgium with its statutory seat in Brussels.

Each of BDO International Limited (the governing entity of the BDO network), Brussels Worldwide Services BVBA and the member firms is a separate legal entity and has no liability for another such entity’s acts or omissions. Nothing in the arrangements or rules of the BDO network shall constitute or imply an agency relationship or a partnership between BDO International Limited, Brussels Worldwide Services BVBA and/or the of the BDO network.