Europe's economy is in the doldrums. Yet companies are still looking to the future with a positive mindset. 76% of survey respondents expect a return to robust economic growth in 2015. But the prospects for European competitiveness are not quite as bright. Over 70% think Europe will lose its competitive edge, primarily to Asia. European companies will also probably lose out to North and South America in the next few years, according to the findings of the international restructuring study for 2013, entitled "Europe's competitiveness", produced by Roland Berger Strategy Consultants.
"To avoid losing out to other economies, European countries should invest more in factors that enhance competitiveness, such as infrastructure, innovation power and the education system. After all, the European internal market is a very important export market for many European companies," says Max Falckenberg, Partner at Roland Berger Strategy Consultants. Reducing government deficits is seen throughout Europe as the second most important topic.
"Europe should become closer economically and politically. Otherwise the situation might get even worse for companies from the continent's crisis-ridden southern fringe," Roland Berger restructuring expert Jakob Rüden says. But many companies are skeptical about this: over 60% of those surveyed are doubtful that the current political actions in individual countries can boost confidence in Europe.
Companies believe in the euro
However, Europe is popular as a single currency zone: nearly 40% think the euro has brought about major benefits for their company and view the future of the EU in a positive light. Just 12% of survey respondents think the currency union will break down within the next few years. Equally positive are the expectations of most European companies regarding the progression of sales between now and 2014. But nearly 40% expect flat or even declining sales figures.
To boost growth further, most survey respondents are planning investments in Western Europe and Asia as well as Central and Eastern Europe. Regardless of regional expansion, respondents cite the skills shortage (50%), shrinking demand in certain European countries (48%) and management's lack of appetite for risk (38%) as hurdles to future growth.^
Restructuring is an ongoing task
Because of the volatile economic situation, over 70% of European companies are already using scenarios in their planning and regularly taking restructuring action. Top priority is given to cost cutting and efficiency enhancement (77%), growth initiatives (76%) and adjustments to the strategy and business models (69%).
To make sure these actions really work, respondents say they need the buy-in of senior management (89%) and frank communication about targets and progress (78%). But that's not enough, according to Falckenberg: "If Europe's economic situation worsens, the only companies to emerge unscathed will be those with a competitive product range, a lean and flexible cost structure and plenty of liquidity."
Financing via working capital management
Opinion is divided among European managers regarding current and future liquidity. While companies in southwestern Europe consider their situation fairly critical, those elsewhere find theirs satisfactory. To shore up liquidity within a company, internal sources of finance are the most commonly used (79% of responses), an increase on last year's figure.
Other working capital actions also play an important role. For instance, many European companies are optimizing their inventory (56%), getting receivables in faster (55%) and paying their suppliers later (44%). Of the external sources of financing available, companies still prefer bank loans (54%). For instance, most companies are planning to renew existing credit lines (44%) or increase them (35%). "However, companies should be aware of the financing risks," Rüden warns. "If the business situation suddenly gets worse, companies could quickly run into difficulties if their financing has too little room for maneuver."
