1. GRANT THORNTON INTERNATIONAL BUSINESS REPORT
The global economy in 2012:
a rocky road to recovery

2. Contents
01 Foreword
02 The past 12 months
04 The year ahead
05 Business confidence
08 Business operations
13 Investment
15 Inflation
18 Employment
22 Access to finance
24 Topical issues
30 Methodology
32 IBR participants

3. Foreword
ED NUSBAUM
CHIEF EXECUTIVE OFFICER
GRANT THORNTON INTERNATIONAL
We have witnessed a large amount of The International Business Report As the IBR enters its 20th year, the
political and economic turmoil over (IBR) became a quarterly survey in global economic outlook is uncertain
the past 12 months, from uprisings in 2011, allowing us greater flexibility and social unrest is growing. In
the Middle East and North Africa to in analysing and understanding the mature markets, debt crises and the
the tsunami in Japan and the sovereign impact of key events on business impact of ageing populations remain
debt crisis in the eurozone. Resulting growth. This new approach allows unresolved whilst emerging markets
volatility in commodity prices, us to deliver not only the economic are grappling with persistent inflation
disruptions to supply chains and perspective of business leaders on and a shortage of skilled workers. As
general uncertainty has impacted events such as the Arab Spring, technology advances, competition
businesses across the globe, slowing renewable energy and global lease increases and the balance of economic
the recovery in both mature and accounting changes, but also deep power flows to high-growth markets
emerging markets. insight into strategic issues such as the such as Brazil, China and India, the
proportion of women in senior global economy is undoubtedly
management and corporate social entering a new phase.
responsibility activities. Drawing on Despite this apparent adversity,
more than 13,000 interviews in 40 many of our clients are thriving. By
economies, this report explores the remaining agile and adaptable to
trends that will shape the speed and change, these dynamic organisations
trajectory of the recovery over the are able to capitalise on opportunities
next 12 months, including demand, quickly. In a turbulent world, they
employment, investment, inflation look set to reap the richest rewards.
and access to finance.
Grant Thornton IBR 1

4. The past 12 months
11 Feb 2011 Egyptian
19 Mar 2011
UN Security
14 Apr 2011
BRICS
27 Apr 2011
Sony disclose that hackers
President, Council group of breached their online video game
Hosni Mubarak, backs economies network, stealing details of more
resigns intervention meet for than 77 million customers
in Libya the first
29 Apr 2011
time in Estimated 2 billion people
China watch UK Royal wedding
18 Dec 2010
Death of Mohamed
Bouazizi ignites
Arab Spring
16 May 2011
Portugal
become third
member of
8 Apr 2011 Brent crude eurozone to
14 Jan 2011
Tunisian
government oil climbs be bailed out,
11 Mar 2011
Earthquake
falls above following
1 May 2011
and tsunami Osama
World events
hit Japan US$125 Bin Greece and
a barrel Laden Ireland
killed
2010
IBR releases
Business
confidence picks
8 Mar 2011
up in mature
34%
markets, boosting
the global average
to 34%
International
M&A activity set Women’s Day –
Global business to rise over the proportion of World
14 Mar 2011
16 Feb 2011
4 Jan 2011
5 Jun 2011
optimism is year as senior Environment
robust (23%), businesses look management roles Day – public
led by buoyant for strategic held by women opinion driving
Latin America acquisitions falls back to 20% CSR activity
23% Mergers and acquisitions: global
prospects for growth
International Business Report 2011
2 Grant Thornton IBR

5. 28 Jul 2011
Second
6 Aug 2011
US sovereign debt
4 Oct 2011
Italy’s debt rating
31 Oct 2011
Global population
bailout downgraded to AA+ slashed by three reaches 7 billion
agreed for following political battle grades as euro
28 Jun 2011
Christine Lagarde Greece over debt ceiling gloom deepens
appointed head
of the IMF
Steve Jobs, ECB cuts eurozone
20 Oct 2011
Colonel
5 Oct 2011
3 Nov 2011
co-founder Gaddafi interest rate with
of Apple, captured and forecasts downbeat
dies killed in Libya for regional growth
9 Jul 2011
South
Sudan in 2012
secedes
from
Sudan Yingluck Russia to join
5 Aug 2011
23 Aug 2011
28 Sep 2011
Gold reaches Barnier
9 Nov 2011
Shinawatra US$1,900 proposals WTO following
appointed as per ounce aim to boost agreement with
first female after global competition in Georgia
Prime Minister stock markets accountancy
of Thailand tumble
2011
Arab Spring Business Majority of
affects one-in-five confidence businesses are
16 Nov 2011
21 Jun 2011
24 Oct 2011
businesses tumbles to unaware of Emerging markets
globally, but just lowest level IASB/FASB lease steal social media
one-in-ten will avoid since 2009 accounting lead on old world
region long-term (3%) proposals rivals
Arab Spring
reignites
renewable Ed Nusbaum
energy debate calls for a
25 Nov 2011
6 Oct 2011
as businesses $1tr bailout
Dec 2011
across the globe fund and IBR Food & IBR 2011
call for more cut to ECB Beverage Global
Global business
9 Sep 2011
investment in interest rate report released Overview
optimism falters
renewables to
(31%) as natural
3%
6 Jul 2011
limit impact of Managing through uncertainty:
disasters, political
GRANT THORNTON INTERNATIONAL BUSINESS REPORT
Food and beverage industry
oil price shocks in transition The world economy in 2012:
a rocky road to recovery
and economic Wary consumers and rising prices challenge executives around the globe
unrest bite
31%
Grant Thornton IBR 3

6. The year ahead
Whilst a stuttering global recovery has seen growth FIGURE 1: EMERGING ECONOMIES CATCHING UP
FORECAST GROWTH IN GDP
estimates cut across the board, the transfer of
economic power from mature to emerging Developing Asia 8.2 8.0
economies is speeding up. On a purchasing power
Emerging economies 6.4 6.1
parity basis China could overtake the United States
in 2016 as the world’s largest economy, although it Sub-Saharan Africa 5.2 5.8
will remain markedly less well off on a per capita
basis. ASEAN-5 5.3 5.6
The recovery in mature economies has stalled as
CIS 4.6 4.4
governments and consumers deleverage following
the financial crisis. With businesses cautiously
Latin America and Carribean 4.5 4.0
sitting on cash and global trade slowing, growth
prospects in mature markets look weak. The latest World 4.0 4.0
IMF forecasts show advanced economies growing
by just 1.6% in 2011, and 1.9% in 2012, anaemic MENA 4.0 3.6
growth in comparison with pre-crisis levels.
Advanced economies 1.6 1.9
With the global economy forecast to expand by
around 4% in both 2011 and 2012, growth is being
EU 1.7 1.4
driven by emerging markets. As a group these are
expected to grow by 6.4% in 2011 and 6.1% in G7 1.3 1.7
2012. Oil producing economies in the Middle East
2011 2012
and North Africa are running large trade surpluses
and opening up to investment following the Arab SOURCE: IMF (2011)
Spring, suggesting that the shift in economic power
could accelerate further.
That said, further and faster integration into the
global economy exposes emerging economies to the
slowdown in mature markets whilst inflation
remains an issue in the key markets of Brazil, China “Economies such as China are catching up fast.
and India. Consequently, whilst confidence has With growth rates in mature markets not
improved year-on-year, businesses remain cautious expected to reach pre-recession levels anytime
about their prospects for the year ahead.
soon, a rebalancing of global economic power
is well underway.”
XU HUA
GRANT THORNTON CHINA
4 Grant Thornton IBR

7. Business confidence
Global business confidence for the year ahead has
fluctuated as the strength of the recovery, which “The situation in Greece is very difficult.
initially seemed to be gathering force, hit a wall. At
Government austerity measures have dried up
the back end of 2010, confidence in emerging
markets, especially Latin America, boosted the lucrative public sector contracts and increased
global average to 23%, and when mature markets taxation. Businesses are trying to keep their
began to catch up in Q1 this climbed to a very heads down and focus on the bottom line.”
healthy 34%, the highest since 2008.
However, the impact of political turmoil, VASSILIS KAZAS
economic uncertainty and natural disasters on GRANT THORNTON GREECE
businesses became evident in Q2 as global
optimism dropped to 31%. By Q3 it became clear
that the stuttering recovery had stalled, with the
sovereign debt crisis ravaging mature markets;
global optimism fell to just 3%, its lowest level FIGURE 2: QUARTERLY BUSINESS OPTIMISM (2011)
since the depths of the global recession in 2009. NET PERCENTAGE OF BUSINESSES INDICATING OPTIMISM FOR THEIR ECONOMY OVER NEXT 12 MONTHS
Whilst businesses in emerging markets have 70
remained more confident about the prospects for 60
their economies over the next 12 months, they have 50
40
not been immune to the slowdown in the global
30
economy. Optimism in the BRIC economies fell 20
from 57% in Q1 to 25% in Q3. However, 10
businesses in mature markets have suffered even 0
-10
more: optimism amongst businesses in the G7 fell
-20
from 27% in Q1 to -8% in Q3 (indicating that Q4 2010 Q1 2011 Q2 2011 Q3 2011
more businesses were pessimistic about their BRIC 54 57 44 25
economies over the next 12 months than were G7 11 27 27 -8
Global 23 34 31 3
optimistic).
SOURCE: GRANT THORNTON IBR 2011
Grant Thornton IBR 5

8. Over the longer term the polarisation between
emerging and mature markets is more pronounced, “The past 12 months have been far from
with confidence in the BRIC economies well above
smooth. Three massive earthquakes have caused
that of the G7. Year-on-year, global business
optimism declined slightly from 24% in 2010 to huge disruption to businesses and their
22% in 20111. In the BRIC economies, levels of employees. The good news is that the Rugby
optimism for the year ahead averaged 47% across World Cup has been a massive success.”
2011 compared to just 14% in the G7.
That said, whilst 8% more businesses in the G7 PAM NEWLOVE
countries were optimistic in 2011 compared to GRANT THORNTON NEW ZEALAND
2010, 13% fewer businesses were optimistic in the
BRIC economies. This demonstrates the
cautiousness of businesses in the emerging markets
as they become increasingly exposed to strong
global economic headwinds. FIGURE 3: ANNUAL BUSINESS OPTIMISM (2003-11)
Despite an uncertain economic climate the NET PERCENTAGE OF BUSINESSES INDICATING OPTIMISM FOR THEIR ECONOMY OVER NEXT 12 MONTHS
majority of businesses remain optimistic for the 80
outlook of their country’s economy over the next 70
12 months, led by emerging economies – India 60
50
(+86%), Chile (+85%) and the Philippines
40
(+85%). Business confidence also remains high in 30
the United Arab Emirates (+76%) suggesting that 20
confidence has not been damaged unduly by the 10
0
‘Arab Spring.’
-10
The troubled PIGS economies (Portugal2, -20
Ireland, Greece and Spain) remain overwhelmingly -30
pessimistic. Greece (-46%) and Spain (-45%) in -40
-50
particular face extremely difficult economic
2003 2004 2005 2006 2007 2008 2009 2010 2011
conditions with soaring unemployment and a BRIC – – – – 81 80 39 60 47
steady decline in bond ratings. Italy’s business G7 -18 38 36 20 22 15 -41 6 14
confidence also plummeted between Q2 and Q3 Global 3 40 41 39 45 40 -16 24 22
2011, falling by 66 percentage points reflecting SOURCE: GRANT THORNTON IBR 2011
concerns over a high debt burden and a slow rate of
growth which have seen bond yields climb over
7%. Japan’s confidence remains low (-67%) where
existing economic challenges have been compounded
by the fallout from the earthquake and tsunami in
March this year.
“Considering the difficulties in the eurozone,
business confidence has held up remarkably
well in Germany. Whilst the regional picture is
fairly gloomy, exports to emerging economies
have remained resilient.”
KLAUS-GÜNTER KLEIN
WARTH & KLEIN GRANT THORNTON, GERMANY
1 2011 refers to the Q3 rolling average incorporating data from Q4-2010,
Q1/Q2/Q3-2011
2 not included in IBR
6 Grant Thornton IBR

9. FIGURE 4: ANNUAL BUSINESS OPTIMISM BY COUNTRY (2011)
NET PERCENTAGE OF BUSINESSES INDICATING OPTIMISM FOR THEIR ECONOMY OVER NEXT 12 MONTHS
India
Philippines
Chile
United Arab Emirates
Germany
Georgia
Mexico
Sweden
Canada
Argentina
South Africa
Brazil
Singapore
Vietnam
Hong Kong
Switzerland
Turkey
Botswana
Malaysia
Thailand
China (mainland)
New Zealand
Denmark
Armenia
Belgium
Australia
Taiwan
Finland
Poland
United States
Russia
Netherlands
Italy
France
United Kingdom
Ireland
Spain
Greece
Japan
Very pessimistic Slightly pessimistic Slightly optimistic Very optimistic
SOURCE: GRANT THORNTON IBR 2011
Grant Thornton IBR 7

10. Business operations
Expectations of business performance – how much
businesses are selling and how this is affecting their “Despite the knock-on effects of the Arab Spring
bottom line – have fluctuated along with wider
economic expectations; an indication of how the
on one side and the sovereign debt crisis in the
uncertainty in the global economy is damaging eurozone on the other, the economy is performing
business growth prospects. With governments and robustly. Profitability is up as businesses
consumers in many mature markets deleveraging,
increasingly find economies of scale in their
the hope was that investment and exports would
take up the slack. However, the results show a operations.”
dramatic fall in business growth prospects in the
AYKUT HALIT
last quarter: global expectations for revenue (-10 GRANT THORNTON TURKEY
percentage points) profits (-9) and exports (-5) all
dropped sharply in Q3.
That said, average expectations for 2011
compared with 2010 improved, although less
sharply than in the previous 12 month period when
FIGURE 5: PERFORMANCE INDICATORS – REVENUE, PROFITS AND EXPORTS
the recovery seemed more certain. Across 2011, NET PERCENTAGE OF BUSINESSES EXPECTING AN INCREASE OVER THE NEXT 12 MONTHS
business expectations for profitability and export
80
expectations returned to 2008 levels. Turnover
70
(53%) however, remains below the 2008 result 60
(63%). 50
40
30
20
10
0
-10
2003 2004 2005 2006 2007 2008 2009 2010 2011
BRIC 44 58 63 61 70 63 11 40 53
G7 15 18 18 20 20 18 4 16 21
Global 31 42 45 46 52 41 -5 29 40
SOURCE: GRANT THORNTON IBR 2011
8 Grant Thornton IBR

11. Expectations for profitability have shown the FIGURE 6: IN SEARCH OF PROFITABILITY – TOP AND BOTTOM 5 COUNTRIES
NET PERCENTAGE OF BUSINESSES FORECASTING PROFIT GROWTH OVER NEXT 12 MONTHS, BY COUNTRY
strongest increase year-on-year. This continues the
trend from IBR 2010 and is extremely positive
given the dramatic fall in 2009 when profitability
prospects turned negative for the first time in IBR
history. The greatest increase in expectations over
the past 12 months was observed in Turkey where
consumer spending fuelled a 39 percentage point Vietnam: 90%
increase. In Mexico expectations rose by 36
percentage points. Once again businesses in
India: 79%
emerging markets dominate the top spots for
profitability expectations, with Vietnam (90%)
followed by India (79%) and then Mexico,
Philippines (both 68%) and Brazil (66%).
Expectations for increasing exports rose to
21% in 2011, similar to results observed in 2006.
The EU, which for all its problems remains the Mexico: 68% Philippines: 68%
largest single market in the world, leads the way
(29%). Businesses in Turkey remain the most
optimistic for exports in 2011 (54%), followed by
the United Arab Emirates (41%), perhaps reflecting
expectations that the Middle East and North Africa Brazil: 66%
Global: 40%
will open up to outside investment following the
Arab Spring. Businesses in Denmark and Germany
are also optimistic for export prospects over the
next 12 months – making the top five alongside Spain:
Singapore. Switzerland:
16%
24% Poland: Japan:
-8% Greece:
15%
-11%
SOURCE: GRANT THORNTON IBR 2011
“Household finances remain under pressure from a marked decline in real incomes and
a 17 year high for unemployment rates; government spending is hit by fiscal constraints
and exports are faltering as global growth eases. However, in the longer term, we expect
more forward momentum as the valuation gap shrinks and as the Business Growth
Fund encourages bank funding to flow more quickly. In the meantime, businesses need
to continue challenging the way things are done to find new, creative ways to ride out
or even rise above the numerous economic challenges.”
SCOTT BARNES
GRANT THORNTON UNITED KINGDOM
Grant Thornton IBR 9

12. Revenue expectations have increased in 33 FIGURE 7: FALLING DEMAND
PERCENTAGE OF BUSINESSES CITING A SHORTAGE OF ORDERS/REDUCED DEMAND AS A CONSTRAINT ON
countries from 2010. The most notable decline from GROWTH, BY REGION
2010 was in Greece (31 percentage point drop). The
most optimistic business communities in terms of
revenue prospects are within the emerging
economies: Vietnam (92%), India (87%) and Chile
(85%). Vietnamese businesses remain the most
upbeat (92%) followed by India (87%) and Chile
(85%). Expectations for revenue are far less PIGS: 41%
buoyant in Greece (4%), Japan (17%), Ireland
(28%) and Spain (30%). APAC (excl. Japan): 34%
Demand
Improved prospects for profits and revenues come
on the back of a recovery in global trade with fewer
businesses citing a shortage of orders/reduced
BRIC: 32%
demand as a constraint in 2011 (32%) compared G7: 32%
with 2010 (39%). Perhaps unsurprisingly,
Global: 32%
businesses in the troubled PIGS economies are
suffering most from a drop in demand as
governments and consumers tighten their belts:
41% cite a shortage of orders/reduced demand as a
constraint, followed by 34% in APAC (excl. Japan). ASEAN: 31%
EU: 27%
However, a look at the quarterly results makes
for more sombre reading. Globally, the proportion
of businesses citing a fall in demand increased by
five percentage points in Q3, and some of the
regional figures were more severe: both the
North America: Latin America:
eurozone and Association of South East Nations 18%
25%
(ASEAN) registered 10 percentage point increases,
whilst all other regions (apart from Latin America)
cited a squeeze on order books.
Following the disruption to supply chains it is SOURCE: GRANT THORNTON IBR 2011
perhaps little surprise to see businesses in Japan as
the most concerned about a shortage of
orders/reduced demand (67%), followed by two of
its neighbours, Thailand (51%) – which has also
suffered severe flooding since July – and Vietnam
(48%). European businesses, especially those in
Greece (48%), France (42%) and Spain (40%), are
also concerned by a lack of orders.
BUSINESSES CITING A SHORTAGE OF ORDERS/REDUCED DEMAND
AS A CONSTRAINT IN 2011
%
10 Grant Thornton IBR
32

13. FIGURE 8: SQUEEZE ON ORDER BOOKS FIGURE 9: LEVELS OF BUREAUCRACY HOLDING BACK GROWTH
PERCENTAGE OF BUSINESSES CITING A SHORTAGE OF ORDERS/REDUCED PERCENTAGE OF BUSINESSES CITING REGULATIONS/RED TAPE AS A
DEMAND AS A CONSTRAINT ON GROWTH, BY COUNTRY CONSTRAINT ON GROWTH, BY COUNTRY
Greece 57
Japan 67
Bra
%
%
zil 5
Po
0%
lan
d5
Tha
0%
Ind
ilan
ia
47
d5
Vie
%
1%
tna
m
Gr Viet
48
ee nam
ce
%
48 44%
%
Russia 44
Taiw %
an 4
2%
3%
France 42 Thailand 4
%
41%
ana
Botsw 7%
Spain 40% a3
tin
7%
39% ge
n
nd)
a3
ainla Ar
ali
a (m
Chin
str
8%
Au
d3
7%
lan
Ire
d3
lan
Po
SOURCE: GRANT THORNTON IBR 2011 SOURCE: GRANT THORNTON IBR 2011
Bureaucracy India has moved up the bureaucracy ranking to
Globally the impact of regulations and red tape has fourth this year following a 22 percentage point
marginally declined as a constraint for business increase in the number of businesses citing it as a
expansion, from 32% in 2010 to 30% in 2011. constraint on expansion. Regulations and red tape
However, businesses in BRIC economies are more have long been an issue for businesses in India and,
concerned about bureaucracy over the next 12 given that performance expectations and optimism
months with 35% citing it as a constraint this year are high, the research suggests that simplifying
as opposed to 29% in 2010. processes could unlock a great deal more potential
Troubled Greece continues to top the list of in an already booming economy.
economies where businesses feel the most under
pressure from bureaucracy (57%), an interesting BUSINESSES CITING THE IMPACT OF REGULATIONS AND RED TAPE AS
result in an economy struggling to make the A CONSTRAINT ON BUSINESS EXPANSION IN 2011
structural reforms necessary to recover
%
competitiveness. It is followed by two emerging
30
economies from different sides of the globe: Brazil
and Poland (both 50%). Just two mature economies
– Greece and Australia (37%) – are included in the
top 10.
Grant Thornton IBR 11

14. Prospects for 2012 Businesses in the lower right quadrant are
Businesses in the Latin American economies of confident about growth prospects, but less so
Argentina, Brazil, Chile and Mexico look well- about orders. They include those in some of the
placed for growth moving in to 2012 with both large, rapidly expanding emerging economies
strong order books, and higher revenue such as China, Russia and Turkey which could
expectations (the upper right quadrant). Other pose an issue for longer term global economic
emerging economies such as India, South Africa growth.
and the Philippines also look set for a strong 12 Meanwhile, those in the upper left
months, as well as those European countries quadrant seem to be suffering from increased
which, at least initially, recovered quicker from competition, with stronger order books failing
the downturn: Germany and Sweden. to result in higher revenue prospects. This
By contrast, businesses in the PIGS quadrant includes four members of the G7 –
economies expect another tough year in 2012. Canada, Italy, the United Kingdom and the
They are joined in the lower left quadrant by United States – indicating the challenges
three other European countries – France, businesses in mature markets are facing in
Switzerland and Poland – and Japan in a group adapting to a changing global economy.
of countries where prospects for business
growth look weakest.
FIGURE 10: EXPECTATIONS FOR ORDERS AGAINST REVENUES
Lower revenues Higher revenues
Stronger order books Stronger order books
Germany Brazil
Netherlands
Belgium Malaysia
Canada/Switzerland Sweden Philippines
Australia Finland South Chile
UAE Africa
Singapore Argentina
Italy US
Denmark Hong India
Armenia New Zealand Kong Mexico
UK
Russia Turkey
Ireland Georgia
Poland Botswana
China (mainland)
Spain Taiwan
France
Greece Vietnam
Thailand
Japan
Lower revenues Higher revenues
Weaker order books Weaker order books
SOURCE: GRANT THORNTON IBR 2011
12 Grant Thornton IBR

15. Investment
With consumers and governments in many mature
markets sidelined by heavy debt, the strength of “A lack of investment in R&D is a concern for
business investment is increasingly vital to the
the long-term future of businesses. Despite the
health of the global economy. Prospects for
investment in new buildings and plant & machinery uncertain economic outlook, setting aside time
grew robustly following the downturn, but have and capital to expand products and services
slowed since. Expectations for R&D investment should remain high on the agenda.”
have declined since 2010. The fragility of the
recovery, rising commodity prices and a pervading MIKE MCGUIRE
uncertainty have undoubtedly made businesses GRANT THORNTON UNITED STATES
more cautious about investment.
Whilst many businesses in mature markets are
being forced to focus on cost savings and the
bottom line, investment sentiment remains buoyant FIGURE 11: EMERGING MARKETS LAGGING BEHIND ON INFRASTRUCTURE
in emerging economies. In Latin America, 53% of PERCENTAGE OF BUSINESSES CITING INFRASTRUCTURE AS A
CONSTRAINT ON GROWTH
businesses expect to increase investment in plant &
machinery over the next 12 months, 35% in R&D
and 26% in new buildings. Their ambitions are
matched by businesses APAC (excl. Japan) where
47% expect to increase investment in R&D, 42%
in plant and machinery and 25% in new buildings.
At the other end of the spectrum, expectations Transport ICT
for investment in new buildings are lowest in the BRIC 26 21
Global 13 14
EU (11%), exacerbated by low expectations in the
G7 8 11
PIGS economies (6%). In terms of plant and
machinery, investment prospects are weak across SOURCE: GRANT THORNTON IBR 2011
FIGURE 12: BUSINESS INVESTMENT PLANS
NET PERCENTAGE OF BUSINESSES EXPECTING TO INCREASE INVESTMENT OVER NEXT 12 MONTHS
APAC (excl. Japan) Latin America BRIC ASEAN Global EU North America G7 PIGS
New building 25 26 23 26 17 11 17 13 6
Plant & machinery 42 53 45 46 34 31 30 30 25
R&D 47 35 42 33 23 20 13 15 21
SOURCE: GRANT THORNTON IBR 2011
Grant Thornton IBR 13

16. FIGURE 13: CONNECTIVITY HOLDING EMERGING MARKETS BACK
PERCENTAGE OF BUSINESSES CITING INFRASTRUCTURE AS A CONSTRAINT ON GROWTH
TRANSPORT INFORMATION AND COMMUNICATIONS TECHNOLOGY
Thailand 3
Turkey 49
Indi
a3
8%
6%
%
Tu
rke
Tha
y3
ilan
2%
d4
0%
Br
az
Ind
il 2 ia
5%
36
Chin
%
a (m
ainl
and
) 25%
Mexico 25 Me
% xic
o2
8%
%
Russia 21
20%
ana Chin
otsw % a2
%
B 18 2%
18
ce
ee
es
Gr Japan 21
pin
%
ilip
Ph
20%
Botswana
17%
ines
Philipp %
17
ia
%
org
17
Ge
an
iw
Ta
SOURCE: GRANT THORNTON IBR 2011
the mature economies, with the EU (31%), North Businesses throughout the BRIC economies
America, G7 (both 30%) and PIGS all below the show dissatisfaction with local infrastructure.
global average. Expectations for investment in Businesses in India are particularly concerned;
R&D are a full 27 percentage points lower in the more than a third cite both transport and ICT
G7 (15%) – dragged down by the North America infrastructure (both 36%) as an impediment to
result (13%) – compared with BRIC (42%). growing their business. The situation in mainland
China is slightly better but 25% of businesses
Infrastructure believe transport infrastructure is holding them
However, whilst these results offer further evidence back, and 22% cite ICT infrastructure. Businesses
of a rapid redistribution of economic power, past in Brazil and Russia are slightly less dissatisfied with
investment in infrastructure remains a huge their ICT (16%) but more than one in five cite local
advantage for businesses in mature markets. transport infrastructure as a growth constraint.
Indeed, 26% and 21% of businesses in the BRIC Elsewhere, businesses in Turkey (49%) and
economies cite transport and ICT (Information Thailand (40%) cite local transport infrastructure as
and communications technology) infrastructure a constraint on their ability to grow whilst those in
respectively as a constraint on expansion, more Vietnam (39%) and Thailand again (28%) cite ICT
than double the rates in the G7. infrastructure. In Mexico too, more than one in
four businesses cite both factors as constraint.
14 Grant Thornton IBR

17. Inflation
Prices
Inflationary pressures, driven by loose monetary “Inflation is perhaps the key issue the Central
policy and high commodity prices, are lowering
real incomes and reducing spending power across
Bank of India is dealing with right now. With
the globe. In the UK, inflation hit a record high of salaries expected to rise over the next 12 months,
5.2% in September, whilst the European Central businesses will be forced to raise prices to
Bank declined to reduce interest rates in October
maintain real profits.”
citing a rise in inflation to 3% in the previous
month. VISHESH CHANDIOK
In emerging markets, rates are even higher: GRANT THORNTON INDIA
India raised interest rates for the 13th time in 19
months in October as they try to curb a double-
digit inflation rate; in China inflation has eased
slightly in recent months but is still running at more
than 5%; and in Brazil inflation stands above target FIGURE 14: PRICES ON THE RISE
NET PERCENTAGE OF BUSINESSES EXPECTING TO RAISE SELLING PRICES OVER NEXT 12 MONTHS
at more than 7% even as the central bank lowers
interest rates in an attempt to stave off the effects of 50
the global slowdown. 45
Expectations for an increase in selling prices 40
35
rose strongly between 2010 and 2011: business
30
communities in all but one country (Greece) are 25
more bullish about increasing selling prices in 2011. 20
Expectations for price increases in emerging 15
10
markets are strongest, with BRIC economy
5
expectations rising by 26 percentage points year- 0
on-year compared with the 18 percentage point rise 2003 2004 2005 2006 2007 2008 2009 2010 2011
BRIC – – – – 43 27 21 26 52
observed in the G7 economies.
G7 8 11 21 25 22 27 9 1 19
At the country level, Argentina (78%), India Global 11 17 26 29 32 30 14 11 27
(64%), Botswana (61%), Turkey (60%) and South
SOURCE: GRANT THORNTON IBR 2011
Africa (57%) head the list of economies where
prices are expected to rise over the next 12 months.
At the other end of the scale, the majority of
businesses in Japan (-32%), where deflation remains
a major concern despite interest rates being near
zero, expect to reduce prices. Businesses in the
troubled PIGS economies – Greece (-5%), Ireland
(-3%) and Spain (0%) – are also looking to drop or
maintain prices.
Grant Thornton IBR 15

18. However, the most recent quarterly IBR results Salaries
offer some hope that inflation may ease over the Salary expectations have improved from 2010 at the
next 12 months. Globally the proportion of global level: 64% of businesses expect to offer
businesses expecting to increase selling prices over salary increases (matching inflation or higher) over
the next 12 months declined from 30% in Q2, to the next 12 months, compared with 51% in 2010.
22% in Q3. In mature markets, there were some Employees in the Nordic region (84%), Latin
particularly large quarterly drops, led by the America (83%) and ASEAN (82%) appear most
Nordic region (18 percentage point drop), North likely to get a pay rise in 2012, with those in the
America (14) and the EU (12). The declines in PIGS (47%) and EU (60%) least likely. At the
emerging markets were less severe, but expectations country level, employees in South Africa (92%),
dropped in the BRIC economies by 9 percentage Argentina and Chile (both 91%) look set to benefit
points and in APAC (excl. Japan) and Latin from higher wages over the next 12 months. Those
America by seven and six percentage points in Ireland (14%), Greece (16%) and Japan (27%)
respectively. are unlikely to be as fortunate.
At the global level, 15% of businesses expect to
offer employees real salary rises (that is above the
rate of inflation). In Latin America this rises to
22%, followed by BRIC, APAC (excl. Japan) and
ASEAN (all 20%). At the other end of the
spectrum the pressures on businesses in the
eurozone are evident: just 7% of businesses in the
currency union plan to offer above inflation pay
rises, dropping to 4% in the PIGS economies.
16 Grant Thornton IBR

19. Inflation in 2012
Wage-price spirals describe a vicious cycle Those economies in the lower left
where the two sides of the wage bargain quadrant appear to have less to fear from
(employers and employees) try to keep up with inflation in 2012. The results tie in with recent
inflation to protect real incomes (profits and announcements from the Bank of England and
salaries). The graphic below shows where the ECB which expect inflation to ease over the
businesses are looking to boost both salaries next 12 months. This should boost real incomes
and selling prices over the next 12 months, and and therefore consumer spending power in
so which economies are most vulnerable to countries such as Greece, Germany, France
such cycles. Ireland, Italy, Spain and the United Kingdom.
Those economies in the upper right Meanwhile, the spectre of deflation does not
quadrant appear in most danger from rising look set to disappear in Japan.
inflation over the next 12 months. The Central
Bank of India’s battle with inflation is well
documented, and the results suggest it will
continue throughout 2012. Other large
emerging economies, such as Brazil, China,
Mexico, South Africa and Turkey also find
themselves in this quadrant.
FIGURE 15: EXPECTATIONS FOR SALARIES AGAINST SELLING PRICES
Lower selling prices Higher selling prices
Higher salaries Higher salaries
India
Chile
South Africa
Malaysia Turkey
Mexico
Brazil Hong
Netherlands Singapore Kong
Georgia Canada Philippines
US Argentina
Poland
China (mainland)
Sweden Russia
Denmark Australia
Switzerland Botswana
Taiwan Belgium Finland
France New Zealand Vietnam
Japan UAE
Armenia
Spain Germany
UK
Greece Ireland Italy Thailand
Lower selling prices Higher selling prices
Lower salaries Lower salaries
SOURCE: GRANT THORNTON IBR 2011
Grant Thornton IBR 17

20. Employment
Hiring FIGURE 16: HOW EMPLOYMENT EXPECTATIONS TRACK RECORDED CHANGES (2002-11)
NET PERCENTAGE OF BUSINESSES EXPECTING/REPORTING INCREASES IN STAFF LEVELS
Nowhere is the polarisation between emerging and
mature markets more stark than in the state of 50
labour markets. Governments in mature markets 40
30
are currently grappling with high unemployment
20
rates (more than 9% in the United States and 10
France; more than 20% in Spain) as jobs disappear 0
in the public sector and businesses in the private -10
-20
sector remain cautious of overextending themselves
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
with the outlook so uncertain. Meanwhile, the Actual 11 8 26 31 44 41 21 -8 23 –
focus in emerging markets is weighted towards Expected – 14 25 34 35 45 33 -4 20 28
upskilling the workforce and attracting talented SOURCE: GRANT THORNTON IBR 2011
members of the diaspora home.
Employment opportunities have certainly
increased over the past 12 months: globally, net
23% of businesses hired staff over the past 12
months, up 31 percentage points year-on-year.
Regionally, hiring was strongest in APAC (excl. BUSINESSES EXPECTING TO INCREASE EMPLOYMENT OVER THE
Japan, 40%) and Latin America (39%) and weakest NEXT 12 MONTHS
in the eurozone (6%). However, the biggest swing
was observed in North America where net 27% of
%
28
businesses boosted staff numbers over the past 12
month, a 57 percentage point rise from 12 months
previously.
Looking ahead, the economic and political
turmoil of 2011 has certainly slowed employment
growth expectations. Globally, net 28% of
businesses expect to increase employment over the
next 12 months, up eight percentage points from 12
months previously, but below the 33% observed in
2008. BUSINESSES WHO HAVE HIRED STAFF IN THE LAST 12 MONTHS
%
18 Grant Thornton IBR
23

21. FIGURE 17: EXPANDING EMPLOYMENT OPPORTUNITIES FIGURE 18: EMPLOYMENT PROSPECTS FALL IN LAST QUARTER
NET PERCENTAGE OF BUSINESSES EXPECTING TO INCREASE EMPLOYMENT NET PERCENTAGE OF BUSINESSES EXPECTING TO INCREASE STAFF
OVER NEXT 12 MONTHS LEVELS – Q2 VS Q3
Nordic -3
AP
0%
AC
India 74%
ex
Nor
cl.
Viet
Ja
th A
pa
nam
n-
mer
BR
14
IC
ica
71%
%
-1
4%
-22
Tu
rke
G7
%
-13
y6
%
2%
Ch
ile Global -11
61 %
%
EU -8%
Phil %
ippi e -6 %
nes zon 2
55% euro a-
ic
7%
er
Am N
tin
EA
Brazil 54%
La
AS
50%
b Emirates
United Ara SOURCE: GRANT THORNTON IBR 2011
9%
en 4
Swed %
49
and
%
ail
49
Th
ia
org
Ge
SOURCE: GRANT THORNTON IBR 2011
Regionally, businesses in Latin America are the However, whilst the annual comparison looks
most positive; 52% expect to increase employment positive at the global level, the most recent
over the next 12 months, up from 39% in 2010. quarterly figures tell a different story. As the
Businesses in APAC (excl. Japan) and BRIC are also recovery stalled in Q3, it is noticeable that the
upbeat with 48% in each group expecting to increase proportion of businesses looking to hire fell by 11
staff numbers in the year ahead. By contrast just 15% percentage points to 23% globally. Regionally, there
of businesses in the eurozone expect to increase staff were some huge falls with businesses in the Nordic
levels in 2012, falling to -3% in the PIGS economies. region (30 percentage point drop), North America
Given the economic backdrop it is perhaps (22) and APAC (excl. Japan) (14) all seeing
unsurprising (yet nonetheless of concern to mature employment plans contract sharply.
market governments) that businesses in emerging
markets are most upbeat about hiring staff over the
next 12 months. In India, which has yet to fully
benefit from its demographic transition, businesses
are the most positive about hiring plans in 2012
(74%). Job opportunities in Vietnam (71%), Turkey
(62%) and Chile (61%) are also expected to
increase significantly. Of mature economies, only
Sweden (49%) makes the top 10.
Grant Thornton IBR 19

22. Skilled workers FIGURE 19: BUSINESSES IN EMERGING MARKETS STRUGGLING FOR SKILLED LABOUR
PERCENTAGE OF BUSINESSES CITING A LACK OF SKILLED WORKERS AS A CONSTRAINT ON GROWTH
With unemployment rates high, a lack of skilled
workers is not a major issue in many mature 45
markets. However, higher growth rates, lower 40
35
unemployment and less capital-intensive industry
30
in emerging economies make it a key issue 25
constraining businesses in these markets. Indeed, in 20
the BRIC economies more than two in five 15
10
businesses (41%) believe an inability to get the right
5
workers is dampening their growth prospects, up 0
from one in four in 2010. This compares to just 2003 2004 2005 2006 2007 2008 2009 2010 2011
BRIC – – – – 39 34 31 25 41
23% of businesses in the G7.
G7 31 23 28 32 36 35 27 21 26
With the strength of the recovery seemingly Global 31 21 27 31 34 32 25 17 23
ever more dependent on emerging economies, the
SOURCE: GRANT THORNTON IBR 2011
concern is that the skills of workers may not be able
to keep up with demand. A lack of skilled workers
is a major concern for businesses in Botswana
(53%), Brazil, India (both 50%) as well as Turkey
(38%), mainland China (36%) and South Africa
(36%). By contrast, just 17% of businesses in both
the United States and the United Kingdom, where
unemployment rates remain stubbornly high,
believe a lack of skilled workers is holding them
back.
“Finding the right workers is a serious issue for
businesses amid near record low unemployment.
Businesses urgently require more skilled workers
to fuel growth.”
MADELEINE BLANKENSTEIN
GRANT THORNTON BRAZIL
20 Grant Thornton IBR