Gearing for Growth

Results rise to meet expectations for global businesses

Regus Business Confidence Index – Issue 4 – April 2011

Global business optimism, having undergone a slight decline in 2010, has now surged

ahead, according to the latest half-yearly Regus Business Confidence Index survey. The

regular global survey shows a significant increase in the proportion of firms reporting a rise

in revenues and profits, as well as a growing alignment between future outlook and actual

results, with real revenues coming into alignment with previous surveys’ predictions.

The survey also reports departmental spending mainly on the rise, showing that

companies are keen to invest in catching the wave of economic recovery. However, there

is one notable exception to this trend – property costs. Having been caught out by

inflexible commercial property arrangements during the recent economic downturn, firms

remain committed to scrutinising and, where possible, reducing fixed premises costs in

favour of more flexible workspace solutions that can easily scale as growth is achieved.

This reflects previous Regus surveys which have shown a trend away from fixed office

working towards more flexible working practices.

Management Summary

New research by Regus shows that expectations expressed in October 2010 by 61% of respondents

that their revenues would grow in the following year, have been confirmed, with 50% of companies

reporting revenue growth in March 2011. This contrasts with previous editions of the Regus global

survey, where predictions of revenue growth were not being met by actual rises.

This positive outlook is matched by predicted rises in departmental spending this year. 47% of

companies expect to increase their marketing spend; 48% will invest more in sales; and 33%

envisage putting more into product development

However, there is one area of departmental spending that is expected to experience little growth or

even actual decline – the property department.

The report reveals 81% of companies globally intend to reduce or freeze their property or premises

costs this year. This result indicates a strong will on the part of businesses to enthusiastically drive

growth, but at the same time steer clear of incurring unnecessary fixed costs related to under-used

or unused premises space.

The Regus Business Confidence Index, which analyses aggregate positive forward-looking

statements reveals that global optimism has grown 25 points since autumn 2009.

Globally 41% of companies are also reporting that revenue growth is closely mirrored by profit

growth - a positive indicator that economic advance is mostly solid with a majority of companies

investing on the basis of increasing profitability.

Most companies (54%) believe that the full momentum of the economic recovery will take place in

the latter half of 2011 or the first half of 2012. This prediction highlights that expectations for the peak

of recovery have slipped a little to the end of 2011, rather than the first quarter of 2011.

Geographical Highlights

Asian giants continue to lead growth with 60%+ of companies experiencing both revenue and profit

growth in the past twelve months in China and India. China takes the lead with 72% of companies

reporting revenue growth compared to 67% in India. The trend repeats itself in the profits outlook,

where 62% of Chinese companies report profits rising compared to 60% of Indian firms.

Germany and Belgium are close behind, however, with 64% of German and 61% of Belgian

companies reporting revenue growth. The proportion of companies experiencing profit growth over

the past year is also positive, at 54% in Germany and 55% in Belgium.

At the other end of the scale we find Japan, in contrast with other Asian countries, with a low

proportion of companies reporting profit growth at 23%, and Spain where only 18% of companies

reported profits rising. Nevertheless these results are highly positive when compared to the October

iteration of the survey where Spanish profit growth was negative (-21%) and Japan only had 6% of

companies experiencing profit increases.

Optimism is highest in China, Belgium, Germany and India and lowest in Spain. The UK and the

USA remain towards the lower end of the optimism scale with other western economies such as

France and the Netherlands.

Optimism growth in the last six months has been high in Japan (+36 points) and Spain (+33 points)

indicating that although conditions for business are not yet optimal, a significant improvement has

been achieved. It is worth noting that due to natural disaster and nuclear hazard Japanese optimism

may have taken another turn for the worse after the collection of this data.

Introduction

Reports globally confirm that the economic recovery is advancing, Asian giants continue on their high growth

path as Western Economies recover from the downturn, but governments warn that the speed of recovery is

not as fast as hoped.1 Nevertheless, the differing conditions that economies face affect their outlook for the

coming year with the IMF predicting 4.2% global growth for 2011; developed countries are expected to grow

at half that pace, whereas and India and China are expected to move faster at more than 6%.2

In Asia, potential effects of the Japanese tsunami and earthquake disaster are not expected to excessively

impact the bilateral trade with China , although Japan is China’s largest source of imports particularly in the

high-tech automotive products arena. Effects on the Eurozone are also regarded as negligible.3 China's

industrial activity, is reported by Markit to have risen in March after a slower February. Positive indication of

the success of government’s policies to contain inflation without affecting growth was found in the slowing of

input and output prices sub indices growth.4 India remains positive with the sharpest growth in the services

sector since July 2010 being recorded in February, whilst manufacturing remained unchanged since the start

of the year.5

In the Eurozone, Markit’s PMI highlights that economic activity continues to expand at a rate of growth which

is second only to that recorded in July 2007 with manufacturing taking the lead (although the services sector

also expanded). Germany and France fared particularly well in March, while the situation in the rest of the

currency zone was reported unchanged or weaker than February. Output prices rose for the eighth month

running keeping inflation close to high February levels. 6 In particular the UK government reports that

inflation will remain between 4% and 5% this year before dropping to its 2% target in 2013. Mr Osborne,

UK Chancellor, has also highlighted that the pace of growth has not been as rapid as expected and the

Budget indicates that unemployment is expected to rise to 8.3% in the last quarter of

the

2011.7

The UK is not alone in bemoaning the slow speed of recovery in the last year - US GDP has only grown only

2.8% instead of the original government projection of 3.2%. Lower consumer spending and a fall in demand

for long-lasting consumer goods exports are partially to blame for this figure, contrasting with Germany

where the IFO Institute found in February that growing export demand is boosting business confidence.8 In

spite of this, the USA labour market appears to be recovering with the advance unadjusted insured

unemployment rate down to 3.4% during the week ending March 12th compared to 4.1% a year before.9

1 Grant Thornton, IBR, 2011, PwC , Growth re-imagined, 2011; 2 1 IMF World Economic Outlook (October 2010). Estimates for shares of the world economy made on a purchasing power parity basis. 3 Reuters, Global recover marches on, prices soar in Europe, 24th March 2011 4 Markit, HSBC Flash China Manufacturing PMI, 24th March 2011 5 Markit, HSBC India Services PMI, 3rd March 2011 6 Markit, Flash Eurozone PMI, 24th March 2011 7 The Daily Mail, Economic Recovery is taking longer than we expected admits Osborne, 24th March 2011

8 The Financial Times, US economic recovery weaker than thought, 25th February 2011; Reuters, Global recover marches on, prices

soar in Europe, 24th March 2011 9 United States Department of Labor, Unemployment Insurance Weekly Claims Report, March 24th 2011

In South America, high levels of confidence are reported by Grant Thornton’s IBR (International Business

Review) and the Mexican government is bullishly raising its growth forecast for 2011 on the basis that strong

domestic demand will fuel economic momentum. Ernesto Cordero, Mexico’s Finance Minister is reported to

have declared that Mexican economy will expand 4%-5% in 2011.10

2011: where prediction and outcome meet

Now in its fourth edition, the Regus Business Confidence Index survey has found that optimistic business

expectations are at least being matched with the reality of revenue increases. Compared to the revenue

growth levels recorded a year ago in April 2010, 38% more firms have achieved their objective in April 2011

(50%). In late 2009 the Business Confidence Index survey found that only 55% of firms expected to

experience a rise in revenues in the following year. Of this modest group of optimists many must have been

disappointed as only a 19% total of firms could report a revenue rise a year later in October 2010.

Similarly in early 2010 only 12% of companies reported a rise in revenues and fully 64% optimistically

expected a rise in revenues. Six months later only 19% reported a revenue increase, but a year on and

finally the 50% of companies actually recording a revenue increase begins to align with the 64% expecting

to achieve it a year earlier. This alignment looks even closer if we consider that 6 months ago, 61% of

companies expected a revenue rise within the next year and half way through the period 50% have already

achieved this.

The Regus Business Confidence Index Report

The current economic climate is nevertheless exceedingly volatile with unpredictable events such as the

natural disasters that blighted Australia and Japan in the past few months adding instability to what is a

period of slow recovery in Western Economies, and a period of great but also extremely speedy, and

therefore difficult to manage, growth in emerging economies. In order to align their plans for the coming

twelve months with global sentiment and trends, businesses rely on timely and realistic information from peer

companies around the globe.

The Regus Business Confidence Index Survey was devised specifically with this objective in mind : to

provide businesses with up-to-date information on the views and confidence of other businesses around the

globe to inform their future decisions. The survey is based on over 17,000 responses from businesses

around the world. The pool of respondents is highly representative of senior managers and business owners

and is broadly representative of industries in each geographical region. Companies in 80 countries were

asked about their revenues and profits over the past year, about their intentions to invest in specific

departments within their organisation and about their revenue expectations for the next 12 months.

10 Bloomberg, Cordero Says Mexico’s 2011 GDP May Expand Up to 5% on Domestic Consumption, 22nd March 2011

Revenues and profits around the globe

Globally revenue and profit growth were found to be roughly aligned with 50% of companies reporting a

revenue increase and 41% declaring that profits were on the rise. This is an important indication that rates

of growth are sustainable and therefore that the recovery is overall strong enough to result in improved

profitability for more and more businesses if they are able to ‘read’ the global market and react accordingly.

China and India continue their course of remarkably fast growth with the former in the lead. An enormous

72% of Chinese businesses reported a rise in revenues in the past year and 62% noted an increase in

profits. In India also 67% of companies recording revenues rising was matched by 60% of firms where profits

rose, indicating that these emerging economies are harnessing growth while containing overheads. This

contrasts widely with Japanese results which indicate the second lowest score of rising-profit companies

(23%) after Spain (18%). China and India are also optimistic about their future revenues as nine out of ten

Indian companies (89.5%) expect their revenues to rise in the coming year and 80.5% of Chinese companies

expect the same.

I expect my company revenues to rise in the next twelve months

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Japan

UK

ND

Australia

FR

Spain

Belgium

USA

Global Average

China

DE

Mexico

Canada

SA

India

Close behind these vibrant economies we find Germany, which has been benefiting from strong export

demand. Although reports indicate that confidence has slipped slightly since February due to concerns over

the possible consequences of the earthquake in Japan and unrest in the Middle East,11 the survey found that

64% of companies recorded a rise in revenues and of 54% a rise in profits in the past year. Apart from

11 The Financial Times, German Business unruffled by the Japan quake, 25th March 2011

Belgium, which also reports profitability increases for 55% of companies, the rest of the Eurozone is less

profitable, with Spain confirming its place as country with the lowest proportion of rising-profit companies

(18%) and France (32% ) also straggling.

In the UK and the USA, where the

economic slowdown is proving

harder to shake off than initially

hoped, around a third of companies

report their profits increased in the

last year. Over two fifths of

companies in both Australia and

Canada also reported a rise in

profits

Profits and revenues risen in the past year

0% 10% 20% 30% 40% 50% 60% 70% 80%

Japan

Spain

Mexico

UK

USA

FR

Global Average

SA

ND

Australia

Canada

Belgium

DE

India

China

The Regus Business Optimism Index

In every edition, the Regus Business tracker presents an updated Business Optimism Index. This index, a

measurement formed on an aggregate of positive forward-looking statements combining year-to-date

revenue and profit trends with views on the expected economic upturn in the coming six months, aims to

provide businesses with a single point of reference of the survey’s key findings. Its benchmark average was

set at 100 in the first publicly published edition of the Regus Business tracker in September 2009.

It is immediately evident that overall

optimism has climbed up the scale

by 25 points and now, at 125, is at

its peak since the first edition in

October 2009, as well as being

some 31 points up on its lowest

trough in April 2010. This positive

forward indicator provides a strong

endorsement for the recovering

global economy and provides solid

grounds for businesses to enjoy a

rosier outlook.

The Regus Business Optimism Index- Global Average

80

85

90

95

100

105

110

115

120

125

130

October 2009 April 2010 October 2010 April 2011

Unsurprisingly, countries that have achieved more

satisfying results in the past 12 moths are also more

bullish about the future, with China (155), Belgium (139),

Germany (135) and India (134) topping the scale for

optimism. At the other end of the scale we find Spain

(92), the UK (108) and Australia (118), the latter lately

affected by natural disaster and the slowing of the Asia

Pacific region. The USA remains close to, if slightly

below, the global average at 119 points, although the

increase in optimism in the region is 32 points up on six

months ago, confirming Grant Thornton reports which

show that business leaders in the USA are more

optimistic that recovery will take hold in the next six

months.12

Investing in growth, but cutting property costs

The latest Regus research uncovered an important strategic trend and identified that a positive proportion of

companies globally are keen to invest in growth, starting from increasing sales (41%) and marketing (36%)

budgets, and even investing more in the creation and launch of new products (21%). More interesting still,

however, is the evident intention of companies to hold true to the lesson learnt during the economic

downturn and avoid making property or premises investments that may become underused and expensive

fixed costs.

This downward pressure on property costs is consistent with findings from previous Regus global surveys,

particularly a trend away from fixed premises working and towards more flexible working practices, along

with an enthusiasm across the globe to employ more part-time employees and working mothers. If attitudes

towards fixed premises working had remained as enthusiastic as in the past, then a growing global economy

combined with depressed rentals and an increase in new staff employment would be expected to generate

increased investment in traditional commercial property, not less. 13

While in a few economies we find a very modest increase in premises is planned, a majority of companies

intend to downscale with the exception of Canada that plans to make no changes to premises budgets.

Spain (-28%) and Japan (-21% ) are the most likely to reduce their premises costs shortly followed by the

Netherlands (-14%) and the UK (-12%) where businesses are also being very careful about incurring fixed

property costs. Even where they exist, plans to increase premises expenditure are much less pronounced

12 Grant Thornton, IBR, 2011 13 Regus, Renewal and Recovery, October 2009; Regus, Taking the Pulse of the Global Recovery, April 2010; Regus, People Power,

October 2010;

than plans to increase sales and marketing or product development budgets with a modest 9% of Chinese

businesses the most likely to expand their premises.

On the other hand sales budgets will be increased ranging from 64% of companies in Mexico to 21% in the

UK. Marketing departments globally can expect more budget, but this is particularly the case if they are in

China or India (58%), South Africa or Mexico (44%). There is also investment in new products on the cards

for many businesses, with China leading (44%), and Spain (6%t) and the UK (7%) stragglers in this field.

Net increase of departmental spending

-70% -50% -30% -10% 10% 30% 50% 70%

China

FR

Australia

India

DE

SA

Canada

Mexico

Global Average

Belgium

USA

UK

ND

Japan

Spain

Property/Business Premises Sales Marketing Product management and development

Optimism and size correlation

Overall fewer small businesses have experienced profit or revenue growth over the past twelve months with

only 46% of small companies realising an increase in revenues compared to 65% of large businesses.

Similarly only 36% of small companies have experienced a profit increase compared to 61% of large

businesses. This, however, has not dampened their enthusiasm as the proportion of companies expecting a

rise in revenues is equal (77%) in all three segments.

I expect my revenues to rise in the next 12 months- :

SMALL 0-49

employees

MEDIUM 50-249

employees

LARGE 250+

employees

77% 77% 77%

Revenues and profits increase in the last year by size of business

0% 10% 20% 30% 40% 50% 60% 70%

SMALL

MEDIUM

LARGE

Revenues Profits

Size does, however, seem to impact future budget allocation. More large businesses are inclined to reduce

their premises or property costs (-12%) indicating that unused or underused premises are regarded as a

particularly heavy burden by larger businesses whose size impacts their flexibility and agility in reacting to

the volatile recovering market. By reducing fixed premises costs, large businesses can achieve some portion

of that agility which characterises smaller businesses. Small firms are also keen to reduce property costs

with -4% wishing to break free of unnecessary property expense.

Impact of size of business on intention to cut or increase premises costs

-14% -12% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8%

SMALL

MEDIUM

LARGE

In spite of less satisfying results than large businesses on the profit and revenue growth front, small

businesses are more keen to invest in sales and marketing than large businesses. 41% of small companies

plans to divert more budget to sales, and 39% to marketing, in the coming year compared to 36% and 23%

of large businesses, once again giving proof of that entrepreneurial spirit that characterises smaller firms.

Larger businesses (25%) are instead a little more likely than smaller firms (20%) to invest extra budget into

product management and development, highlighting that they are willing to take on long-term investments in

equipment and R&D which smaller businesses may have difficulties in funding after a long downturn and in

light of the difficult business lending conditions experiences by this segment globally.14

14 The Euro Area Bank Lending Survey, January 2011, The European Central Bank; Trends in Lending, January 2011, Bank of England;

The January 2011 Senior Loan Officer Opinion Survey on Bank Lending Practices, January 2011, The Federal Reserve Board.

Country Highlights

Country Profit

rise

Revenue

rise

Increased

sales budget

Increased

marketing

budget

Property cut Expect revenue

increase in the next

12 months

UK 31% 38% 12% - 25% of

large

businesses

63%

USA 37% 44% 9% - 11% of

large

businesses

France 32% 45% 14% of large

businesses

Germany

54% 64% 45%

China

62% 72% 58% 58%

India

60% 67% 61%

Belgium

61% 55% 5%- 37% of

large

businesses

Netherlands

52% 34% 34% 14% - 16% of

small

businesses

Spain

18% 32% of large

and of small

businesses

75%

South Africa

37% 50% 14% of large

businesses

Japan

23% 25% 21% - 32% of

large

businesses

Australia

46% 53% 32% 33%

Canada

44% 53% 85%

Mexico

26% 64% 44% 4%

Conclusion

With profits and revenues rising across the board, it is not surprising to find that global business optimism

has reached a peak since the bleak conditions of late 2009. As a result of this optimistic mind set, companies

are reconsidering their investment strategies and deciding to channel budget into different areas that they

judge will help them catch the wave of economic recovery.

In particular businesses are keen to invest more in sales and marketing departments, upon whose skills and

activities they will rely to take full advantage of economic recovery. Firms globally also revealed the intention

to invest in the development and management of new products revealing that where capital is available or

loans are achievable, there is the expectation that benefits will be long-term.

The notable exception to this enthusiasm for investment is the issue of premises and property costs. Aside

from emerging economies, which are growing at breakneck sped and needing to accommodate new staff

faster than they ever imagined, the majority of world businesses is intent on reducing premises costs

regarded as a fixed expense which is often unnecessary and underused.

By cutting down on premises costs businesses can easily adapt to the changing economic landscape and

manage unexpected events such as temporary peaks in growth and sudden reduction of activity without

wasting desk and office space as well as the lighting, heating and cooling associated with each desk

position. Fortunately savvy businesses have taken from the downturn an important lesson of agility and are

making use of the more flexible workspace arrangements on the market.

Methodology

Over 17,000 business respondents from the Regus global contacts database were interviewed during

February 2011. The Regus global contacts database of over 1 million business-people worldwide, is highly

representative of senior managers and owners in businesses across the globe. Respondents were asked

about their recent revenue and profit trends, along with their future views on a number of issues including

plans for investment in various departments. The survey was managed and administered by the independent

organisation, MarketingUK.

About Regus

Regus is the world’s largest provider of workplace solutions, with products and services ranging from fully

equipped offices to professional meeting rooms, business lounges and the world’s largest work of video

communication studios. Regus enables people to work their way, whether it’s from home, on the road or from

an office. Customers such as Google, GlaxoSmithKline, and Nokia join hundreds of thousands of growing

small and medium businesses that benefit from outsourcing their office and workplace needs to Regus,

allowing them to focus on their core activities.

Over 800,000 customers a day benefit from Regus facilities spread across a global footprint of 1,100

locations in 500 cities and 86 countries, which allow individuals and companies to work wherever, however

and whenever they want to. Regus was founded in Brussels, Belgium in 1989, is headquartered in

Luxembourg and listed on the London Stock Exchange. For more information please visit: www.regus.com

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