Green Shoots A Blue Sheep Research Paper Forecasting 2009 Business Growth 20090310

Green Shoots
S
A Blue Sheep Research Paper Forecasting 2009 Business Growth
For six years, Blue Sheep has worked with Oxford Economics to apply the Oxford Economics growth forecast
index to the UK Business Universe, a comprehensive database of 4.5 million commercial entities. By ranking the
1.8 million workplaces, we build a view by business sector and economic region, showing the relative growth
index for the next 12 months and the ‘green shoots’ where maximum profit and value can be squeezed from
marketing spend by profiling and targeting the companies that will fare better than others.

Green Shoots: A Blue Sheep Research Paper

Executive Summary
• As we go into 2009, the bad news continues, GDP is forecast to shrink by at least 2% ‐
possibly 6% ‐ and although the Government is holding out for 1% increase in 2010, recent
history would lead us to expect more downward revisions as time goes on.  2009 will be the
worst year for the global economy since 1945.

• Mervyn King’s Nice era of No Inflation, Continuous Expansion has ended. We are in an era of
serious contraction and may be headed for deflation followed by runaway inflation as the
Quantitative Easing overshoots.

• All economic indicators are negative and the major mortgage lenders are not even calling
the rate of fall in house prices for 2009.

• Nonetheless, the real economy does continue to operate and businesses need to sell and
find new customers. As always, businesses must look to the future and marketing spend
online, in database marketing and in analytics is likely to hold up well. Even as the banking
sector is in freefall, certain ancillary financial service sectors forecast growth.

• The key is to identify the businesses which are still healthy and finding ways to differentiate
between the winners and the losers. For six years, Blue Sheep has worked with Oxford
Economics to apply the Oxford Economics growth index to the UK Business Universe, a
comprehensive database of 4.5 million commercial entities. By ranking the 1.81 million
workplaces, we build a view by business sector and economic region, showing the relative
growth index for the next 12 months.

• The overall picture is dramatically changed year on year; sectors previously robustly healthy
are seeing a bleak future. IT and manufacturing are particularly badly hit, whereas Transport
and the Energy sector are relatively optimistic. There is still a strong performance showing
from parts of the Financial sector, which reflects the massive injection of public money as
the government attempts to head off the worst of the recession.

• The regional variation is broadly maintained, with London and the South East still
outperforming the regions in all sectors. We expect this to carry on as Government capital
projects are brought forward and spending on the 2012 Olympics continues. House builders
fare much worse.

• In the current downturn we expect around one in eight companies to grow and at least 45%
to shrink with the rest essentially remaining static. The picture 12 months ago was for all but
10% of companies to have some positive growth. We are clearly in uncharted and
dangerous territory.

• Our forecast shows which sectors and regions fare better than others; detailed modelling of
business sector, size and location can tell us which individual businesses are more likely to
become or continue to be customers.


1
Excluding home based and single employee businesses

March 2009 Page 2 of 13


Government spend holds up ...            As consumers rein back, businesses suffer. If
deflation sets in consumer and business
Manufacturing output is down 3.3% in the 3
spending plans could be further cut back and
months to November 2008 compared with
as the real value of debt increases, credit
the previous 3 months and is down 5.2% year
could be further constrained.
on year2. Durables, capital goods and energy
are all down. The only sectors showing
... Growth forecast is falling
positive growth are Government spending,
The Oxford Economics growth forecast gives a
mainly on health, education and recreation
relative index of companies forecasting
and Quarrying and Mining. Overall,
prospects for growth. As the prognisis for the
Manufacturing output is falling twice as fast
economy overall has declined, our activity
as Services.
heat map (see Appendix One) is that
businesses with an index of 1‐49 are forecast
Sector Growth
to shrink, businesses with an index of 50‐79
% Change
1
are will be static and those with an index of
0.5
80‐100 are our green shoots of recovery. In
0
times of 2‐4% growth, we expect 80‐90% of
To August '08
‐0.5
companies to be showing positive growth.
To November '08

Only the lowest one or two deciles would
‐1

normally be shrinking and detailed modelling
‐1.5

would identify 50‐80% of businesses as above
‐2

breakeven for marketing. When growth falls
Source: ONS. Percentage change in output in 3 months to November
to negative territory only the top one or two
2008 compared with three months to August 2008: Government
deciles can be confidently expected to grow,
spending is one of the few areas where output is still growing

together with outstanding performers from
The effect on consumers, previously driving
other deciles. As an indication of the size of
force of the UK and US economies is that
this segment, we find 12.2% of the workforce
personal consumption fell 2.3% in 2008.
is employed in these top deciles with 6.1% in
the lower two deciles.
The major source of this personal wealth has
been rising house values which are now in
% of UK Workforce by Growth Decile
severe decline. The speed of decline has been 25.0%

20.5%
astonishing: in the entire recession of 1990‐ 20.0%

15.6%
92, house prices fell by 15% in total. In the 14.2%
15.0%
11.5%
10.8%
current recession, prices have already 9.1%
10.0% 8.1%

dropped 15.9% in 20093 and although many 4.1% 3.6%
5.0%
2.5%

forecasters decline to make a call, there are 0.0%
Grow Grow Static Static Static Shrink Shrink Shrink Shrink Shrink
fears that prices could fall another 10 – 15% in Growth forecast

2009.
Source: Oxford Economics Percentage of workforce by UK Growth
Forecast 2009 Decile.

                                                             There is a very worrying decline in Research,
2
Office of National Statistics
which previously figured in the top one or two
3
Nationwide Building Society



growth deciles. Research into natural sciences The North/South Divide will affect both
and engineering has dropped from an index in output and consumption as unemployment
the high 80’s to the neutral range around 60 hits home harder with rates in the North East
whereas research into the humanities has up to twice rates in the South and East.
virtually disappeared. The drop in scientific
Businesses Forecasting Growth
research is likely to slow the rate of recovery
in the important health related industries as Scotland

we come out of the recession North East
North West
Yorkshire and Humberside

North/South divide still shows Wales Bottom quintile
West Midlands Top quintile
The traditional North/South divide still holds East Midlands
South West
true as almost all Northern regions are East

forecasting below average growth and the South East
London
Southern regions are all above the national ‐15.00 ‐10.00 ‐5.00 0.00 5.00 10.00 15.00 20.00
average.   Percentage of companies in top and bottom  growth quintile

A major change has taken place with London Source: Oxford Economics
losing its place as the economic powerhouse
UK Growth Forecast Quintiles 2009: Percentage of companies
with a score of 109 whereas the South East in the upper and lower growth forecast quintiles
scores 142. Yorkshire, Wales and the North
By comparing the number of UK workplaces in
East show only marginally better than average
the top two and bottom two growth deciles,
index scores. Advertising, a good bellwether
we can assess the relative optimism of the
for the rest of the economy, is particularly
regional forecasts. The South West, South
badly hit, with London falling into the lowest
East and East have a relatively positive
decile, standing alongside Yorkshire and the
forecast.
East Midlands.

Compared with previous forecasts, the
Regional Growth Index
regional variation is overshadowed by the
Base 100
160
140
difference in fortunes of business sectors: the
120
100
damage inflicted by the recession is far less
80
60
geographically determined. As business goes
40
20

online and physical location is replaced by
0

virtual positioning, geography will play a
smaller part in many marketing strategies.

Source: Oxford Economics Comparative growth forecasts for

2009 by UK Region, base 100



These sectors have stable new business
The South East
startup rates year on year
The South East is by far the region with the
The top 700 South East businesses in this
best prospects for growth in 2009, with an
sector have an average turnover exceeding
index of 142. Capital projects including the
£4.5m
Olympics, are continuing to benefit from
Government support and unemployment is 807 of the companies in the South East
among the lowest rates for the country.  Even forecasting growth have a profit of £1.25m
in parts of the  financial sector, confidence is in the last financial year
still strong and in all business sectors, the
Almost 20,400 of the underperforming
South East has significantly better growth
business are in the health sector with a
prospects than London.
further 20,000 in miscellaneous services
At a regional level, we expect around 20% of and almost 13,700 in media and leisure.
business in the South East to grow in 2009
East
and 37% to shrink, with a rising number of
failures. Detailed profiling can match the Following closely behind the South East is The
remaining hot prospects to clients’ customer Eastern Region with a score of 131. Sectors
base and show which businesses to target for that are particularly strong are Fishing and
marketing communications.  There are 85,000 Petroleum Extraction. There are 13,800
businesses forecasting growth in this region businesses forecasting growth and 33,000
compared with 157,000 at risk; this area and expected to shrink.
its businesses have taken over from London as
The 13,800 companies forecasting growth
the UK economic powerhouse.
employ a total of 142,510 people
Of the 13,800 businesses forecasting
growth,  the top 5 vertical industry sectors
Of the 85,000 businesses forecasting are: building, accounting, transport,
growth,  the top 5 vertical industry sectors wholesale and real estate
are: building installation and completion,
Of the top 5 vertical industry sectors , this
accounting, transport and real estate
represents a total of 84,713 employees
activities
which can be broken down as: building –
The top 5 vertical industry sectors 12,223 employees, accounting – 24,645
represent a total of 471,362 employees employees, transport – 26,911 employees,
which can be broken down as: building wholesale – 13,251 employees and real
installation and completion ‐134,683, estate – 7,683 employees.
accounting – 152,95, transport – 136,819
2448 of the 13,800 are in the Building
and real estate – 46,909 employees.
sector
29,000 of the 85,000 forecasting growth
This sector has stable rates of new
are in the building installation and
business start‐ups year on year
completion sector



The top 155 Eastern  businesses in this This sector has stable rates of new
sector have a turnover exceeding £25m business start‐ups year on year
46 of the companies in the Eastern region The top 200 South West businesses in this
forecasting growth have a profit of over sector have an average turnover exceeding
£1m in the last financial year £4.5m
Of the 33,000 underperformers, 4,000 146 of the companies in the South West
businesses are in the miscellaneous forecasting growth have a profit of over
services sector,  3,300 are in health and £1m in the last financial year
2,900 in media and leisure..
67,000 businesses are expected to shrink;
8,000 are in health,  7,300 in miscellaneous
South West services and 6,200 in media and leisure.
The South West is retaining an optimistic view
London
although less than 7% of businesses are in the
top two deciles. This indicates that although
The London growth forecast is only marginally
the confident businesses are in the same
above average for the UK as a whole. The
sectors as other healthy regions, in real terms
metropolis contains 8% of the workplaces in
the proportion of good prospects is
our UK Business Universe but almost 12% of
significantly lower. It will pay to model new
employees, indicating relatively high labour
business acquisition particularly carefully here
intensity characteristic of a service economy.
although there is still gold to be found. Within
There are no sectors in which London out
the South West there is major variation
performs the South East and the London
between areas such as Cornwall and the
economy currently reflects the average
Cotswolds although it remains one of the
position of the UK as a whole but remains
most optimistic UK regions
sensitive to future changes in property prices
and sales volumes and the changing fortunes
The26,000 companies forecasting growth
of the Financial Services and Services sectors.
Of the 26,000 businesses forecasting London has 23,000 businesses forecasting
growth,  the top 5 vertical industry sectors growth in 2009 and the non‐banking financial
are: building, accounting, transport, services sector is still strong.
wholesale and lesiure and tourism.
The top 5 vertical industry sectors   employ a total of 521,685 people
represent a total of 152,567 employees
23,993 employees, accounting – 44,974
are: accountancy and bookeeping, real
employees, transport – 40,333 employees,
estate, transport, finance and wholesale.
wholesale – 26,979 employees and leisure
and tourism – 16,288 employees.    Of the top 5 vertical industry sectors , this
5,000 of the 26,000 companies forecasting
which can be broken down as: accounting
growth are in the Building sector
– 234,527 employees, real estate – 28,383



employees, transport – 49,631 employees, The 26,000 companies forecasting growth
finance – 52,262 employees and wholesale employ a total of 303,545 people
– 13,665 employees.
9,234 of the 23,000 are in the Accountancy growth,  the top 5 vertical industry sectors
and book keeping sector are: building, accounting,  transportation,
wholesale and real estate.
This sector has 15% growth in new
business start‐ups year on year Of the top 5 vertical industry sectors , this
The top 150 London companies in the
sector have an average turnover exceeding
34,285, accounting – 73,763, transport –
£72m
64,961, wholesale – 33,942 and real
1,489 of the London companies forecasting estate‐ 18,404 employees.
growth have a profit of £1.5m in the last
3,400 of the 26,000 companies forecasting
financial year
growth are in the transportation sector
Of the 63,000 businesses  expected to
The new business startup rate has doubled
shrink,  7,200 are in health,  7,100 in
in the transportation sector year on year
miscellaneous services and 5,900 in media
and leisure. The top 60 businesses in the North West
transportation have an average turnover
North West exceeding £25m
The North West has a marginally optimistic 334 of the companies in the North West
balance of growth expectations, with 11% in forecasting growth have a profit of over
the top two forecasting deciles and 82,000 £1m in the last financial year
businesses expected to shrink.
Unemployment is around 30% higher than the
shrink,  10,500 are in miscellaneous
national average, growth in Sales of Motor
services,   8,700 are in the health sector
Vehicles and Financial Services are in the top
and 4,700 are bars.
decile of growth forecast, higher than London.
The North West and Manchester has
East and West Midlands
managed to establish a regional economy
Birmingham has twice the national level of
which has some independence and may be
unemployment and the manufacturing
suited to weather the storm better than
industry in the Midlands feels the full brunt of
others. There are 26,000 businesses
the recession.  Around 8% of businesses are in
forecasting growth in this region for 2009,
the top two deciles but the East Midlands has
with strong showings in transportation and
11% in the lower two groups ‐ a reversal of
selected financial intermediation. Taking size
fortunes compared with recent West
into account, the North West is still relatively
Midlands performance. Overall, 118,000
optimistic about 2009, reflecting continued
businesses are expected to shrink.  Consistent
Government spending.
with the broad pattern of regional and
sectoral views of the forecast, the pattern of



growth index predominantly reflects business Wales
sector variations rather than regional effects.
Wales is pessimistic about the future, 7% of
Almost without exception, the indexes for
businesses are in the top growth forecast
East and West Midlands run lower than the
deciles and 43,000 of all businesses are
south and less pessimistic than the North.
forecast to shrink. Unemployment is slightly
There are approximately 25,000 businesses in
under the national average reflecting the high
the Midlands forecasting growth, with
proportion of Public Sector employees, as yet
manufacturing sectors performing badly.
sheltered from the worst effects of the
recession. The Welsh economy represents
around 4% of businesses employees and is not
a rich seam for business development in the
next 12 months. Manufacturing in Wales is
forecasting a worse 2009 than the dire
are: transportation, real estate, finance,
outlook for UK manufacturing in general.
motor vehicle sales and leisure and
There are around 5,200 companies in Wales
tourism.
forecasting growth in 2009.
which can be broken down as: transport –
105,612 employees, real estate – 23,448 Of the 5,200 businesses forecasting
employees, finance – 24,951 employees, growth,  the top 5 vertical industry sectors
motor vehicle sales – 17,197 employees are: transportation, leisure and tourism,
and leisure and tourism  ‐ 6,265 real estate, finance and motor vehicle
employees.    sales.
5,000 of the 25,000 are in the Of the top 5 vertical industry sectors , this
transportation sector represents a total of 49,279 employees
27,508 employees, leisure and tourism –
5,180 employees, real estate – 4,323
The top 90 businesses in the Midlands employees, finance – 9,169 employees and
transportation sector have an average motor vehicle sales – 3,099 employees.
turnover of over £10m.
1,500 of the 5,200 are in the
276 of the companies in the Midlands transportation sector
forecasting growth have a profit of over
£1m in the last financial year
The top 20 transportation businesses in
shrink,  12,300 are in the miscellaneous
Wales have an average turnover of over
services sector,   10,800 are in health and
£5m
7,500 in media and leisure.



4 of the companies in Wales forecasting Of the 145,000 businesses expected to
growth have a profit of over £1m in the shrink,  7,700 are restaurants,  7,200 are in
last financial year the miscellaneous services sector and
6,700 are in the health sector.
Almost 43,000 businesses are forecasted
to shrink, 3,700 are restaurants,  3,600 are
North East
in the miscellaneous services sector and
The North East is the second most pessimistic
3,600 are in the health sector..
region in the UK; 5% of businesses are
Scotland expected to grow and around 48,000
expected to shrink. The area also has
Scotland’s economy is faring worse than
unemployment 20‐30% above the national
Wales, 7% of businesses are in the top two
average. The region represents around 5% of
deciles, 11% in the bottom two deciles. The
the UK economy and is not the natural focus
full effects of the Scottish banking crisis may
of marketing activity in the current climate.
not yet have made their mark. There is
Nonetheless, around 3% of UK growing
regional variation within Scotland; Glasgow
businesses should be available from the North
has twice the unemployment of Edinburgh.
East, supported by robust modelling. There
The overall index for Scotland relative to the
are around 5,800 companies forecasting
UK as a whole is 74 compared with 142 for the
growth in 2009 in the North East.
South East – Scotland is only half as optimistic
as the South East for 2009. Approximately The 5,800 companies forecasting growth
11,800 businesses in Scotland are forecasting employ a total of 57,386 people
growth in 2009 compared with 145,000
expected to shrink.
The 11,800 companies forecasting growth are: transportation, real estate, leisure and
employ a total of 164,991 people tourism, finance and motor vehicle sales.
Of the 11,800 businesses forecasting Of the top 5 vertical industry sectors , this
growth,  the top 5 vertical industry sectors represents a total of 48,855 employees
are: transportation, wholesale, leisure and which can be broken down as: transport –
tourism, finance and real estate.   27,756 employees, real estate – 6,617
employees, leisure and tourism – 4,560
employees, finance‐ 5,928 employees and
motor vehicle sales – 3,994 employees.
45,553, wholesale – 19,630, leisure and 1,860 of the 5,800 are in the
tourism ‐6,774, finance ‐17,703 and real transportation sector
estate – 14,339 employees.
2,900 of the 11,800 are in the in the transportation sector year on year
transportation sector
The top 30 businesses in the North East in
The new business startup rate has doubled the transportation sector have an average
in the transportation sector year on year   turnover exceeding £60m



54 of the companies in the North East The new business startup rate has doubled
forecasting growth have a profit of over in the transportation sector year on year
£1m in the last financial year
The top 55 transportation businesses in
Of the 48,000 businesses expected to this region have an average turnover
shrink, 4,700 are restaurants, 4,500 are in exceeding £6m.
the miscellaneous services sector,  3,900 in
48 of the companies in Yorkshire and
health  and 2,700 are bars.
Humberside forecasting growth have a
profit of over £1m in the last financial year
Yorkshire and Humberside
The Yorkshire and Humberside region has the
shrink,  8,200 are in the miscellaneous
worst regional forecast, with companies
services sector,  8,100 are restaurants and
forecasting in the lowest deciles
6,200 are in the health sector.
outnumbering those in the top deciles by two
to one. In effect, 9,600 companies or 6% can
Conclusions for Marketers
expect to grow and 83,000 do not expect to
There is still business to be done and much of
grow. This region represents around 9% of
the real economy will still be here as we climb
businesses and employees so cannot be
out of recession. The key to success is to
overlooked as part of a national marketing
squeeze maximum value for marketing money
strategy. The depressed outlook is broadly
by targeting the best companies, whether
distributed across all business sectors which
existing customers or for new business
show growth forecasts consistently 10% lower
acquisition. There is variation by business
than average for the UK. We would advise
sector and variation by region although the
setting shallower penetration targets in this
effects and interaction of these are changing
and other less optimistic region.
significantly both in response to the economic
The 9,600 companies forecasting growth climate and to changing business patterns.
employ a total of 117,508 people Segmentation models need to be refined to
reflect these changes.
Using up to date models and the best business
are: transportation, real estate, finance,
intelligence available will maintain return on
motor vehicle sales and leisure and
marketing investment – perhaps not at
tourism.
previous levels in all cases, but at least high
Of the top 5 vertical industry sectors , this enough to preserve competitive advantage.
represents a total of 95,861 employees Customers still need to buy to maintain their
which can be broken down as: transport – own business processes, new customers still
52,391 employees, real estate – 21,179 need to be recruited to compensate for
employees, finance – 11,743 employees, natural attrition. Using the best targeting
motor vehicle sales‐ 7,233 employees and techniques will ensure a place in the top
leisure and tourism  ‐3,315 employees.    deciles.
3,100 of the 9,600 are in the
transportation sector



Appendix One – Heat Map


Green Shoots A Blue Sheep Research Paper Forecasting 2009 Business Growth 20090310

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Green Shoots A Blue Sheep Research Paper Forecasting 2009 Business Growth 20090310