Business tips and hints from real world experience

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Try and Try again – or maybe not? Persistence pays.

When I was a child, my parents often exhorted me to “Try & Try again” if I failed at something.

In business, all too often I meet companies who, when something is suggested, respond with “Oh that doesn’t work – we tried it some time ago and it failed”

If you dig into that & get them to recall the details, it’s amazing what you can find.

A direct mail campaign didn’t work for us

Well, in fact you only sent one piece of mail, to a small selection of your past customers

We tried using a different system

This is one of my favourites. In general people are resistant to change and prefer to do things the familiar way. If they aren’t convinced of the need to change, your team will prefer to see the new system fail.

It was too complicated

Well, it might be, but it is more likely that the proposal wasn’t broken down into its component parts. You can eat an elephant, one mouthful at a time, but if you start with the whole elephant on the plate it can be a bit intimidating.

Most of the time, business don’t try often enough or hard enough. They are not convinced of the strategy, and go into it half-heartedly, then withdraw at the first obstacle. That’s a recipe for failure.

If you are going to try something new, research it, plan the steps, and then execute it whole heartedly, with real commitment from the leaders of the business.

You could still fail because your strategy was incorrect, but most of the time Initiatives fail for poor execution, not faulty strategy.

 

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Quarterly Economic Update – Q4 2014

This commentary seeks to provide guidance over a 3 -5 year timescale.

Europe

Overall, Europe is in poor economic health. The European central bank is now providing QE and still lower interest rates in an effort to stave off deflation. The chances are slim….it seems very likely that growth in Europe will be very limited over this period.

Pressures are both internal with the Latin economies yet to resolve their recessionary problems and external, with the southern economies hampered by events in North Africa whist to the East the Ukrainian crisis and Russian ambitions are a real cause for concern.

The bright spots are Scandinavia and Germany, but even in these economies there are significant headwinds. Their main markets (the rest of Europe) are showing no signs of growth and may still be in recession.

UK

The recovery seems to be well established across many fronts and the outlook is very positive. House prices, which were such a concern for some commentators earlier in the year, seemed to be cooling off or stabilising a little, and the Scottish referendum has removed a vast set of uncertainties.

There are still some puzzles in the statistics, most notably over productivity and output levels.

Public expenditure is still on a downward path and is likely to remain so – whichever flavour of government we have from 2015.

Inflation is at a low point, so there is little pressure on interest rates to rise. I expect to see the first moves to increase interest rates in the summer of 2015, although the Bank of England could choose to move rates up as early at Q1 2015.

The weak economies of Europe on our doorstep and our relatively poor performance as an exporter remain as constraints on growth so a rate of 3 to 3.5% will be an exceptionally good performance.

USA

Once again, the US Republican party seems to be swinging to the right, with news that Ted Cruz is a favoured candidate. It seems unlikely that the republicans will mount a sensible challenge to Hillary Clinton at the next election in 2016. In the business world, the lack of political meddling is good news. The shale gas story continues to drive the US economy, with business “re-shoring” manufacturing on the back of cheaper energy. Unlike Europe, the US demographic profile is favourable with a younger, educated, upwardly mobile population, many of whom are of Latino origin. Growth rates of 3% in 2014 and possibly 3.5% from 2015-2016.

Brazil

The Wold Cup and the Olympics may give a temporary boost to the economy, but it will be minor.

This is very much a story of unfulfilled potential, but until the infrastructure is in place and the social divides are narrowed it seems very likely to remain unfulfilled. Growth rates seem likely to be in the 2-3% range.

Russia

Putin’s antics in the Ukraine have resulted in economic sanctions and made a recession in 2014 almost certain.  The heavy reliance upon selling oil and gas to the west is hampered both by the political upheaval and the transformation of the US from a net consumer to a net exporter. Russia is seeking to replace the western oil markets by looking south and east to China. It is difficult to see much growth in Russia in the next few years.

India

Narendra Modi of the BJP party has been elected on a platform of economic reform, and has approved a numbers of defence related infrastructure projects. That’s a decent start but many problems remain in the civilian world.

Growth rates of 4-6% in the forecast period.

China

The disturbances in Hong Kong aside, the big question over China remains the size of the shadow banking sector. Unregulated or lightly regulated lending has the potential to create instability in the mainstream financial services sector, with consequences that we in the western economies know only too well.

It’s my view that the Chinese authorities will manage the reduction in the shadow sector, and although there will be some casualties they will be relatively minor.

Hong Kong’s political disturbances are likely to come to a pragmatic soloution.

Overall, very positive with growth in the 7-9% ranges.

 “Greater China”

I’m loosely defining this area as the countries surrounding China & supplying Chinese demand, from Vietnam and Thailand /Malaysia /Singapore right though to South Korea. These countries have generally good prospects, decent infrastructure and well educated populations. They cannot but benefit from rising demand in China and most have the political stability to take advantage of it.

The big risk country is Thailand, following the army coup, but there is a history of the army taking power for a few years and then reverting to democracy. In the past, the king has proven to be a stabilising influence but on this occasion he has been very quiet – perhaps through old age and / or ill health.

Myanmar, the former Burma seems more stable in this quarter than last, but it remains only a few months ago that it was a state ruled by the army.

Growth rates could be exceptional at 7 – 10%

Japan

Some territorial disputes in the South China Sea have raised their heads again. China, Japan and Vietnam all lay claim to some islands, but of course it is the natural resources surrounding ( and beneath) the islands that is of interest. That’s most likely just a side show.

Sclerotic corporate structures continue to inhibit growth.  The worlds’ 3rd largest economy will continue to grow slowly.

MENA

The main stories in this region remain political turmoil and civil insurrection in Syria, Iraq and Egypt.

The Gulf States have significant natural resources, but Middle East oil & gas is becoming less important to the world economy as Shale Gas, improved efficiency and new discoveries reduce the world’s reliance on the region.

It is difficult to be optimistic for prospects in this region.

Australasia

The Aussies had a good run up until the end of 2012, but I think they have more reasons to be optimistic about the cricket than about their economy for the next few years.

© Tim Luscombe Oct 2014

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Am I the only person that can do this?

Before you start on a task, ask yourself the question “Am I the only person who can do this?”

If you answer that question with a yes, you can then apply Eisenhower’s model to prioritise your workload. If you answer no, delegate the task to someone else.

“What is important is seldom urgent, and what is urgent is seldom important.” – Dwight Eisenhower

If you classify your workload into the boxes below:

Eisenhower

Then you can apply this set of rules to manage your time.

Box C should be done immediately

Box A should be scheduled for a time that suits you. Friday afternoon is when I write my  newsletters, for example.

Box D If it is not important why are you doing it? Outsource it or delegate it.

Box B Don’t do it unless you really want to. That’s an indulgence, in the business world.

It’s worth considering these rules every six months or so. Tasks that are not important have a sneaky way of finding themselves back on your desk every few months.

Spend your time in boxes A and C to have the most impact on your business – and actually an easier life.

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What shape is your revenue?

When I ask a business leader

“What was your revenue last year?”

I’ll get a number as the answer. That tells me a little about the business, but from a business value perspective I want to know a lot more.

The next question is

“How many active customers do you have?”

This often leads to a debate about the definition of an active customer, but usually gets an answer fairly quickly. I think an active customer bought from you within the last 12 months.

There are two more elements that go to make up the revenue profile, how often does your customer buy (f) and what is the average order value (AOV)

The formula looks like this

rev shape

Where T is your turnover and n is your number of customers.

From the business buyers perspective, once n has reached a minimum level what matters next is the frequency with which the customer buys.

It is important not to become too reliant upon one customer and prospective acquirers will be worried if one customer exceeds more than 20% of your revenues.

A customer who buys from you once a year is typically worth less to an acquirer than one who buys 3 or 4 times a year.

There are exceptions. It might be that the once a year purchase is from a “Marquee” customer; someone you are proud to do business with and usually someone who commands instant name recognition.  If you are able to state “We supply John Lewis” that will count as a marquee customer, but other examples might be government business or the NHS.

The most valuable customers are those who are on long term contracts, where you are providing goods or more likely services.  These are very common as support services, for example in IT or building maintenance.

Within these contracts there are a few things to look out for to ensure you maximise the value.

A real “Red flag” for the buyer is if the contract contains a “change of control” clause, allowing your customer to break the contract if the ownership of your business changes.

It’s good to have contracts set up as “evergreen” where the contract automatically renews unless one party (or the other) gives notice, but within these there will need to be some form of pricing mechanism.  You don’t want to be trapped in a contract where your costs have dramatically increased, but you are unable to adjust your sale price.

If your business doesn’t lend itself to long term contracts, aim to move as far down that road as you can. Become an approved supplier or a preferred supplier or enter into some form of framework agreement – anything you can do to evidence a strong relationship with your customer.

If you want the best value for your business, you need to show that your revenues (and your profits) are growing, year on year.

That does not necessarily mean that you should keep adding new customers. If you can increase the frequency with which your customers buy, your revenues will grow. If you can increase the average order value, your revenues will grow.

 

 

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Keeping your customer for longer

Most business leaders focus on the revenue line of the p&l and  are targeting increased revenues month on month and year on year.

What I often find is that the business only focuses on one element of revenue growth, that which comes from new customers.

Existing customers are “taken for granted” in the revenue plan. They bought from you last month / quarter, so they will probably buy again – and we know what they will buy, probably.

Your revenues are made up of several elements:

(Existing customers x existing quantities x existing prices) + (new customers x new quantities x new prices)

Most small businesses undercharge for their goods and services, but that is for another time.

Almost every business can improve its performance by reducing customer losses or “churn” as it is known in some industries.

Often businesses with large quantities of subscribers, like TV subscription businesses or mobile phone providers have dedicated teams known externally as cancellation departments but internally as retention teams. They are often empowered to offer the subscriber a discount or special deal as long as they stay a subscriber. My broadband provider gave me a deal when I threatened to leave just a couple of months ago.

Having a dedicated team like these is better than nothing, but it is a bit like bolting the stable door after the horse has bolted. These teams don’t go into action until after the customer has complained.

If you can, it has to be better to pre-empt the complaint.

One way to do that is to implement a customer care system.

A simple system can also help with your cash flows.

More business failures are caused by lack of cash flow than anything else, but even the most successful businesses can find themselves hampered or restrained by lack of cash flow.

There are many places where cash “gets stuck” in a business but one of the most obvious is in your debtor book, when people don’t pay you on time. That’s a big part of what is called the “order to cash” cycle, and if you can make that cycle shorter it will dramatically improve your cash flow.

Payment terms are one of the most overlooked conditions when business are negotiating supply deals, but even when the terms are reasonable getting paid according to those terms can be a challenge.

Most businesses don’t help themselves.

A typical scenario is this:

Day 1: Invoice date
Day 30: Due date
Day 45: First chasing letter
Day 52: Second chasing letter
Day 60: Payment arrives

Take a step back & ask yourself why we don’t do anything until 15 days after the invoice is due?

If there is an unresolved issue, you might not learn about it until 45 days after you thought you were done! That could be enough to put you in a deep dark hole!

As an alternative, try a “customer care” call on day 6. The call is to the person who ordered the goods or services:

“I’m just calling to make sure everything was OK with your recent order, and to see if there’s anything else we can help with?”

You might get an add-on sale, or an upsell at this point, and when you’ve dealt with that you can continue:

“That’s great, thank you. Now we sent off the invoice last week – I just want to make sure that’s all ok as well? Can you tell me who has to approve it – I don’t want to miss your payment run?”

At this point, you’ve had confirmation that the invoice has arrived and there aren’t any queries on it.

You also know who has to sign it off – if it’s not the person placing the order.

Take away all the excuses – “We don’t have that invoice/ there’s an error on the invoice/ it hasn’t been approved yet / there’s something wrong with the goods or service” and you will get paid faster.

Even better, you are now getting to the customer before they complain. You have a much better chance of keeping that customer for longer.

 

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Buy versus lease? What’s the best strategy?

Many business leaders have to choose between buying and leasing when investing in capital equipment, whether that is plant and machinery, a building or vehicles.

In the early stages of a business, the decision is often made for you,. You can’t afford the cash commitment to complete the outright purchase so you have no choice but to take on the lease.

That might also be the case later in the business when the investment is really substantial.

However, when the choice is not obvious, it is worth considering the strategic, non-financial implications of your decisions.

Very often when I am helping an owner manager plan for the sale of his/her business I find that at some point the business has purchased the building from which it operates. That purchase may well have been an appropriate decision when it was made, but from the buyer’s perspective it is just a restriction. The buyer might want to consolidate operations, or perhaps significantly expand the business – yet they are constrained by the premises.

The buyer also has to fund the purchase of the property, at a time when it is possible their finances are already stretched to the limit to fund the purchase of the business.

I’ll usually suggest that the vending owner puts the property into their pension fund, which will then lease it to the business. The buyer has a problem or barrier removed.

It’s a similar story with plant and equipment. If it has been leased rather than bought, the barrier for you as the business leader to keeping up to date with the latest kit is much, much lower. If you buy a piece of machinery, that’s a significant capital investment. You will run it for several years to make sure you get full return for your money, but then you know it is time to replace it or more likely upgrade it. That may come at a time when business is not so good, when there are other demands on your resources….

Typically, if you lease over a 3 or a 5 year term, you can extend that lease (should you chose to do so) for a much smaller monthly lease amount. Upgrading the kit is not so painful, you just keep on paying the lease.

From the business buyer’s perspective, they don’t want to have to invest in capital equipment the day after they buy the business. You will be much more attractive if your plant and machinery is up to date.

It’s a similar story with vehicles. It’s tempting to buy the fleet, knowing that you can get an extra year or so from the vehicles, but there nothing worse than having your company name on a battered and tired fleet in 5 years time.

Buy versus lease? It is not a tactical decision, but a part of your strategy.

 

 

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The right kind of customer?

In many businesses there no real selection or filtering of customers.

The focus of the business is on attracting prospects through marketing, and then converting those prospects into customers through the sales process.

Good marketing will (of course) be targeted or aimed at a particular customer type or group (and if your marketing is not focused, it will be less effective) but that doesn’t mean you won’t have prospects that don’t meet the criteria for that target group.

Some of those “wrong” prospects will become customers.

Some of those customers may be the wrong kind of customer.

Some time ago, I ran a business that operated a support desk. We had some customers who were so troublesome and took so much time to support that we actually didn’t make any money from selling to them.

The Pareto rule will probably apply; 20% of your customers are either low profit or unprofitable.

Your customers will fall into one of the 4 categories:

Before you analyse your profitability by customer, you might want to draw up the profile of your ideal customer, the one you believe will fit in the top right quadrant.

In the top left quadrant, you may well find that you are doing business with an ideal customer, but not enough business to make it worth-while.  Your focus should be on increasing the business you do with that customer.

In the lower left quadrant, you can change the way you handle the low profit customers. In the business I ran, we changed the support offering – limited the amount of free telephone support we offered, and backed that up with an extensive knowledge base to facilitate self support.  You may need to change your pricing model to drive those customers away, or at least improve their profitability.  We increased delivery charges on small orders for just this reason.

In the lower right quadrant, look to automate as much as possible. If you can automate dealings with a customer, from the order through to the cash, your costs of servicing the customer for that order will be very low. You will still need to review after sales support.

The customer in the top right quadrant are your stars, the ones you want to hang on to, the ones who are the most important to your business. You need a spread of customers here – Ideally no one customer should be worth more than 20% of your business.

Retaining your star customers is about building and sustaining a relationship with them. find ways to show your appreciation for their business, listen to their needs and wants and adjust your business to meet those needs.

Try to discover why your star customer buy from you, not the competition. We had one customer who bought from us because we were on his way home, but more seriously another showed great loyalty because one of our engineers met him at his customer’s site with the part he needed, enabling him to provide fantastic service to his customer.

Compare the profile of your real star customers to the profile you drew up before you started. Use that comparison (and the reasons why your customers buy from you) to inform and adjust your marketing.

 

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Size matters – in acquistions

A few months ago the news was full of stories about the Co-Op bank. They acquired acquired Britannia building society, and trouble lay ahead. The newspapers love to report the negative news and the disasters –

There’s an old story about a foreign correspondent for the BBC who was on assignment in the heyday of telegraphy After long silence from the reporter, the BBC wired him to ask: NEWS? The reporter wired back: UNNEWS. The BBC, seeing no point in paying him if he wasn’t working, retorted: UNNEWS, UNJOB.

And this really was a disaster. The co-operative bank has being sold to its creditors in a rescue deal after the regulators insisted that fresh capital was required. The Co-Operative group has lost control of the bank.

So why did this deal go wrong?

Successful acquisitions are not easy to achieve but they all start with the planning & strategy phase, and I think you can point to a failure of strategy, which has led to a failure of execution.

In this case, I think it is clear that the Co-Op bank was just not big enough or strong enough to take on the Britannia. That meant that the leadership were out of their depth, did not have enough understanding of the potential pitfalls and that due diligence was not good enough.

Sweet Spot

In my experience there’s a sweet spot for the size of an acquisition. If your target is too small, it won’t make that much of an impact on your business, and if it’s too big the risk is too great. You need to be looking at businesses that are no more that 30% of your size, and probably more than 10% to make a significant impact.

As always, there are exceptions – if you are busying technology, for example – but in this case

Size does matter

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Quarterly Economic Update – June 2014

This commentary seeks to provide guidance over a 3 -5 year timescale.

Europe

Taking the three big economies of the Eurozone in turn:

The German economy is moving forward quite well, with low inflation and some reasonable growth figures, but is ever more reliant upon non-Eurozone exports. Growth over the last couple of decades has been partly due to the removal of the premium exchange rate attached to the Deutschemark when selling into the Eurozone. There is no growth and little activity in the Eurozone, so Germany has to look elsewhere – most notably east.

Eastern Europe, Germany’s major recent growth opportunity, is still suffering from the disturbances in the Ukraine, and there are some signs of a slowdown in the most recent quarter’s data.  Growth rates for the rest of the year really do depend upon stabilisation of the Ukrainian situation, but are unlikely to top 1.5%. The future is pretty murky, with the Eurozone still in trouble and concerned about deflation it is very difficult to see real growth over the next 3 years.

France is in a poor way. Recent elections have shown just how isolated Hollande is, and the growth rates are minimal. The most recent forecasts I have seen suggest growth of below 1% for 2014, and I cannot see a significant recovery in the next three years.

Italy is also in trouble. The new broom has arrived, but significant political and economic reform is required for real growth. The economy will flat-line at best for 2014 and it is difficult to see where growth will come from. The instability and floods of refugees from North Africa are adding to the pressure. Growth will be minimal, if any.

Overall, there will be little growth in Europe. Political instability in North Africa and Eastern Europe will continue to be a distraction and drain on resources, but at least the worst of the Euro crisis seems to be over.  It’s a stable economic environment now, one of the keys to attracting inward investment, and still a large chunk of the world’s economy.

UK

The main story in the UK is centred on house prices and the fear of an asset price bubble, especially if it is driven by excessive debt. Expect to see significant controls on mortgage lending in the next few months.

Aside from house prices, the economy appears to be showing strength in most sectors. There a process of rebalancing the UK away from the financial services sector (which is considerably smaller than in the peak of 2008-9) which requires that other sectors take up the slack.

The services sector remains by far the largest part of our economy, but manufacturing is showing signs of growth.  Growth of 3.5% for 2014, with a fall of to 3% in 2015-6.

UK Base rates of 0.5% will not be with us in a year’s time, and may be increased as early as Q4 2014 but increases will be “gradual and limited” as the BofE are telling us. There are an lot of “Zombie” companies and households, who have barely survived the recession and would be killed off by any sudden  and large increases in interest rates.

USA

Political turmoil continues with the republican party splintering yet again, following the recent election of a tea party candidate to replace the House Majority leader, Eric Cantor. It seems unlikely that the republicans will mount a sensible challenge to Hillary Clinton at the next election in 2016. In the business world, the lack of political meddling is good news. The shale gas story is driving the US economy, with business “re-shoring” manufacturing on the back of cheaper energy. Unlike Europe, the US demographic profile is favourable with a younger, educated, upwardly mobile population, many of whom are of Latino origin. Growth rates of 3% in 2014 and possibly 3.5% from 2015-2016.

Brazil

The Wold Cup and the Olympics may give a temporary boost to the economy, but it will be minor.

This is very much a story of unfulfilled potential, but until the infrastructure is in place and the social divides are narrowed it seems very likely to remain unfulfilled. Growth rates seem likely to be in the 2-3% range.

Russia

Putin’s antics in the Ukraine have resulted in economic sanctions and made a recession in 2014 very likely. The last few years have seen Russia trading its vast supplies of oil and particularly gas for political and economic advantage, but European political leaders do not want to be beholden to Putin and will reduce their purchases whenever possible. It’s difficult to see an economic upside over the next 3 or more years.

India

Narendra Modi of the BJP party has been elected on a platform of economic reform, and has approved a numbers of defence related infrastructure projects. That’s a decent start but many problems remain in the civilian world.

Growth rates of 4-6% in the forecast period.

China

The big question over China remains the size of the shadow banking sector. Unregulated or lightly regulated lending has the potential to create instability in the mainstream financial services sector, with consequences that we in the western economies know only too well.

It’s my view that the Chinese authorities will manage the reduction in the shadow sector, and although there will be some casualties they will be relatively minor.

Overall, very positive with growth in the 7-9% ranges.

 “Greater China”

I’m loosely defining this area as the countries surrounding China & supplying Chinese demand, from Vietnam and Thailand /Malaysia /Singapore right though to South Korea. These countries have generally good prospects, decent infrastructure and well educated populations. They cannot but benefit from rising demand in China and most have the political stability to take advantage of it.

The big risk country is Thailand, following the army coup, but there is a history of the army taking power for a few years and then reverting to democracy. In the past, the king has proven to be a stabilising influence but on this occasion he has been very quiet – perhaps through old age and / or ill health.

Myanmar, the former Burma seems more stable in this quarter than last, but it remains only a few months ago that it was a state ruled by the army.

The political risk in this area is conflict with North Korea, which would heavily affect South Korea.

Growth rates could be exceptional at up to 10 – 12%

Japan

Some territorial disputes in the South China Sea have raised their heads again. China, Japan and Vietnam all lay claim to some islands, but of course it is the natural resources surrounding ( and beneath) the islands that is of interest. That’s most likely just a side show.

Sclerotic corporate structures continue to inhibit growth.  The worlds’ 3rd largest economy will continue to grow slowly.

MENA

The main stories in this region remain political turmoil and civil insurrection in Syria, Iraq and Egypt.

The Gulf States have significant natural resources, but Middle East oil & gas is becoming less important to the world economy as Shale Gas, improved efficiency and new discoveries reduce the world’s reliance on the region.

It is difficult to be optimistic for prospects in this region.

Australasia

The Aussies had a good run up until the end of 2012, but I think they have more reasons to be optimistic about the cricket than about their economy for the next few years.

© Tim Luscombe June 2014

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Quarterly Economic Update – Mar 2014

This commentary seeks to provide guidance over a 3 -5 year timescale.

Europe

Taking the three big economies of the Eurozone in turn:

The German economy is moving forward quite well, with low inflation and some reasonable growth figures, but is ever more reliant upon non-Eurozone exports. Growth over the last couple of decades has been partly due to the removal of the premium exchange rate attached to the Deutschemark when selling into the Eurozone. There is no growth and little activity in the Eurozone, so Germany has to look elsewhere – most notably east.
Eastern Europe, Germany’s major recent growth opportunity, is suffering from the fear created by the Russian take-over of Crimea and the fear that Putin’s ambitions don’t stop there.

Times are likely to remain difficult for Eastern Europe for some time. Germany will suffer a knock-on effect, but still will be the strongest economy in Europe. Growth of 1.5% seems likely.

President Hollande of France appears to be too busy with the women in his private life to pay much attention to the economy. High taxes, restrictive employment practices and ineffective government are not a recipe for great results. France may stay out of a technical recession, but not by much.

Matteo Renzi has taken over as PM of Italy with some good news to greet him; the country moved out of recession at the end of 2013. That’s been the longest recession post war. Renzi has real ambition to reform Italy’s sclerotic political and economic systems, with the suggestion that all the parliamentarians should vote for their removal. That reminds me of turkeys and Christmas….if he can drive through the returns, it will take a decade or more. Growth below 0.3% seems most likely.

Spain is starting to show some signs of recovery, but it is a long hard road. Youth unemployment remains very high and there are still some political scandals and rumours surfacing. Low growth, still subject to shocks.

Overall, there will be little growth in Europe. Political instability in North Africa and Eastern Europe will continue to be a distraction and drain on resources, but at least the worst of the Euro crisis seems to be over. It’s a stable economic environment now, one of the keys to attracting inward investment, and still a large chunk of the world’s economy.

UK

The story in the UK is good news, with growth now established in almost all sectors. The real impact of cuts to public sector employment is yet to be reflected in the employment statistics, and there are still more scandals emerging in the financial services sector.

Private businesses are more optimistic than for many years, with two main constraints to growth, access to finance and access to well trained & qualified staff.

There’s a fundamental reform underway in the business finance market, with new entrants adopting a traditional model (Metro Bank, Aldermore, Virgin Money and many more) but perhaps more significantly the rise of crowd based funding, both for debt and equity. Debt based crowd funding is becoming really effective and simple to deploy.

Growth rates in the UK are likely to be 2.8% in 2014, rising to 3.5% in 2015. Interest rates are likely to rise from 0.5% to 0.75% in the first quarter of 2015, although that could take place in the last quarter of this year.

Increases in interest rate are more likely to be driven by fear of an asset price bubble, both in the stock market and in housing, than any fears of inflation. We may well see controls imposed on property lending to minimise that risk.

USA

Political stalemate continues with President Obama unable to make major legislative changes; the shale gas revolution is the main driver of change in the economy. The low price of shale gas has enabled manufacturers to reverse their policies of outsourcing production to South America and the Far East.

There are no obvious negatives on the horizon and much good news, with the US as a whole likely to be a net exporter of gas in the near future.

The US is certainly the most successful of the developed economies with growth in 2014 of close to 3% and possibly 3.5% in 2015 and beyond.

Brazil

The eyes of the world are turning to Brazil, drawn by the Wold Cup and the Olympics over the next few years, but IMF forecasts for growth in 2014 are still below 3%.
This is very much a story of unfulfilled potential, but until the infrastructure is in place and the social divides are narrowed it seems very likely to remain unfulfilled.

Russia

Everything is back in the melting pot; the Crimean annexation will result in significant isolation, the value of Russian oil is falling and the ability of the government to leverage their supply of natural resources for political gain is weakening (See US shale gas above)
GDP will probably fall in 2014 and flat-line at best in 2015. The real question is how quickly relations with the west return to normal. If the sanctions and isolation continue, recession in Russia is very likely.

India

There’s significant doubt that the long established political party, Congress, will maintain its influence under the latest scion of the Ghandi dynasty. The most likely winner is Narendra Modi of the BJP party, elected on a platform of economic reform. The challenge will be to reform a country and political system where a cabinet minister has just advised his supports to “vote twice” by washing the ink off their fingers and voting in a different district.
Growth rates of 4-6% in the forecast period.

China

The new leadership has settled in and consolidated its hold on power; some of the most obvious abuses of the financial and regulatory systems have been closed off, and recently the hard reality of market forces was allowed to play its part as a company defaulted on its debt for the first time.
Couple this with the reduced number of companies approved for IPO (flotation) and there are some signs of structural economic reform.
Overall, very positive with growth in the 7-9% ranges.

“Greater China”

I’m loosely defining this area as the countries surrounding China & supplying Chinese demand, from Vietnam and Thailand /Malaysia /Singapore right though to South Korea. These countries have generally good prospects, decent infrastructure and well educated populations. They cannot but benefit from rising demand in China and most have the political stability to take advantage of it.
The possible exception to this is Thailand, where the present PM seems unlikely to survive the current unrest. That makes investment decisions tricky, so perhaps Vietnam or Malaysia will benefit.

Myanmar, the former Burma seems more stable in this quarter than last, but it remains only a few months ago that it was a state ruled by the army.

The political risk in this area is conflict with North Korea, which would heavily affect South Korea.

Growth rates could be exceptional at up to 10 – 12%

Japan

It has been a quiet few months for Japan. There’s still the challenge from the Fukushima plant overhanging any prospects for dramatic growth, together with the somewhat sclerotic corporate structures. The worlds’ 3rd largest economy will continue to grow slowly.

MENA

The main stories in this region are of course Syria and to a lesser extent Egypt. Both economies are collapsing, and refugees fleeing Syria (in particular) are impacting on surrounding countries. Factor into that mix the long standing Sunni – Shiite divide where it seems likely that Syria is a proxy for Iran’s ambitions to become the dominant player in the region.

The Gulf States have significant natural resources, but Middle East oil & gas is becoming less important to the world economy as Shale Gas, improved efficiency and new discoveries reduce the world’s reliance on the region.

It is difficult to be optimistic for prospects in this region.

Australasia

The Aussies had a good run up until the end of 2012, but I think they have more reasons to be optimistic about the cricket than about their economy for the next few years.
© Tim Luscombe March 2014