Waiting for upturn not the answer

JAMES WEIR
Last updated 05:00 05/12/2012

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New Zealand's economic downturn has lasted much longer than businesses expected, but firms that invested were the most likely to grow, according to a new study.

The NZIER analysis of results from the MYOB Business Monitor for the past four years said that, in contrast, those businesses that just cut costs and waited out the downturn have struggled.

The best places for businesses to invest were in securing market share by spending more to hang on to existing customers, hiring talented staff and increasing their use of information technology, the study showed.

Almost three years ago, most businesses expected the economy to be fully recovered from the last big downturn by 2011. This year almost half say recovery could still be another 18 months away. The recovery, however, has disappointed, with 48 per cent of businesses saying they believed that economic recovery would still be toward the end of 2013.

In the unusually slow recovery from recession, firms putting money into the business and upgrading their systems and processes have seen their performance improve in the past four years.

"However, businesses which tried to wait out the downturn by cutting costs or deferring investments have struggled."

Businesses focused on business development have seen revenue growth during the previous 12 months improve from minus 9 per cent in early 2010 to up 17 per cent in June 2012.

In contrast, other businesses report sales have slowed from minus 6 per cent in early 2010 to up 8 per cent in June 2012.

NZIER principal economist Shamubeel Eaqub says the results confirm this recession is different to recent downturns and that a different business approach has been needed.

"All the economic data shows this has not been a typical downturn. The recession lasted nearly twice as long as other recessions in the last 50 years, and the recovery since has been quite shallow.

"This has meant that businesses who have taken the approach of tightening their belts during tough times and trying to wait out the downturn have actually not performed as well as businesses who have focused on their core strengths and invested their way through the recession."

The study showed 12 per cent of firms that were focused on business development were increasing staff levels, compared with just 4 per cent of other firms. And almost one in four firms that were investing were also looking to lift wages.

Almost half the firms investing more said they spent more on retaining existing customers, compared with 29 per cent for other firms.

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Firms looking to grow their way out of recession were also much more likely to spend more on information technology.

- BusinessDay.co.nz

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