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Cyprus Internet Directory [ Businesses cautiously optimistic over crisis ]

Businesses cautiously optimistic over crisis

LOCAL businesses are facing the world economic crisis “with cautious optimism, confidence and realism”, according to an island-wide survey revealed by PricewaterhouseCoopers (PwC) yesterday.

However, this mainly positive outlook is based on the prospect of reducing costs through job cuts and only modest wage increases for their employees this year and in 2010.

Some 22 per cent of large companies and 40 per cent of small and medium-sized enterprises (SMEs) said that job cuts are likely, with one-third of both segments saying this would be to a large extent, and two-thirds to a limited extent.

Although 78 per cent of large companies and 84 per cent of SMEs believe that the crisis will significantly affect the Cypriot economy, “there is no sense of panic, but there is greater concern and insecurity among SMEs”, PwC Executive Board Member Philippos Soseilos said.

According to the survey, which was carried out in February and March this year, a total of 84 per cent of large companies are fairly or very optimistic about their prospects during the crisis, while a total of 66 per cent of SMEs are fairly or very optimistic. Some 88 per cent of large companies believe the crisis in the Cypriot economy will be over by 2011, compared to two-thirds of SMEs.

Most of the surveyed companies’ optimism is based on the belief that they have taken or are taking the necessary steps to face up to the crisis, and have the right business strategy in place or in preparation. An exceptional eight per cent of SMEs, mainly in the tourism sector, do not believe they need a special strategy for dealing with the crisis.

Most companies’ confidence stems from the country’s past successes: economic and social recovery following the 1974 invasion, EU accession in 2004, and joining the eurozone in 2008.

“There is no doubt that these past successes are important. However, at the same time the crisis constitutes a completely new situation going forward. An effective strategy for utilising opportunities and for managing the threats is required.” Soseilos said.

“Tactical moves such as reducing operational costs are essential, but are not in themselves sufficient. They do not constitute a business strategy for a long-lasting competitive advantage.”

The survey involved senior staff of 49 large companies (with 100 employees or more and a turnover over US$10 million) and senior staff and owners of 220 SMEs (with 10-50 employees). The SMEs were evenly split between the sectors of tourism, construction, processing and trade, plus 15 companies offering various services. The main part of the survey was supplemented by focus groups involving SME owners, business managers and managers in semi-governmental organisations.

For a significantly large number of businesses, the crisis represents the starting point for making changes. Around one-third of large companies and over half of SMEs said they are likely to change the way their business is organised.

One apparent contradiction thrown up by the survey is that half of large companies and a quarter of SMEs believe that Cypriot businesses’ flexibility is their best weapon for facing up to the crisis, but at the same time two-fifths of large companies and a quarter of SMEs believe that Cypriot businesses’ greatest weakness is a lack of good organisation and professionalism.

There is also the question of whether the surveyed companies are being optimistic now because the full impact of the crisis has not yet been felt here. PwC Executive Board member and Advisory Services Leader Stephos Stephanides said that there is a general view in Cyprus that, for the time being, the economic crisis in Cyprus is mainly due to external factors, and people are reassured by the fact that Cyprus is still forecasting growth – however modest – for 2009 while the Eurozone, UK and Russia are having to deal with recession. Nevertheless, “with the world economy definitely facing recession and possibly producing further negative factors for the Cypriot economy, we could well see a different picture here in three or four months’ time”, he added.

Although consultancy firms like PwC can offer advice regarding best commercial practice, PwC Chief Executive Officer Phidias Pilides said that the survey has “revealed the weakness in companies’ thinking, since some of them still have not understood what constitutes a strategic aim and what is simply a short-term adjustment measure, for example reducing costs. Without a genuine strategy, those companies will be in a difficult position.”

Soseilos said: “This is not the time for limited moves or for panic. These times call for calm, clear minds, patience, persistence, and above all, strategic thinking. The true winners in this crisis will be the businesses which make the most effective use of their staff, improve the quality of their products and services, and at the same time reduce their costs.”

(Source: Cyprus Mail)
Copyright © Cyprus Mail 2008 Please contact Cyprus Mail for the copyright terms of this article.

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