inFocus: Strategy and the global business environment

Date: September, 2012 chess board pawn piece

With 2012 drawing to a close, businesses are planning for 2013. Now is a good time for shareholders to consider what strategies to adopt to mitigate risk and promote growth. Good strategy comes from understanding the environment in which your business operates.

It is no secret that the global economy has been going through periods of instability and turmoil. From the European debt crisis to the U.S. economic downturn, economic growth has been limited. Although Canadian business owners are well aware of the trickledown effect these factors have had on their 2012 year-ends, business owners must look ahead and consider the global economy’s impact on their businesses’ 2013 projections and plans.

The Bank of Canada’s Monetary Policy Report, issued in July 2012, predicts that the 2013 U.S. economy will grow at marginal rates, due to minimal improvements in U.S. labor markets and lower external demand from suffering emerging market economies.1 As Canada’s largest trading partner, what happens in the U.S. will undoubtedly affect Canadian businesses.

Because of the slowdown in the global economy, growth in emerging economies like China and India has been stemmed by a decrease in demand for their products. This lack of demand contributes to cautious growth expectations for 2013 and beyond.2 (See chart for International Monetary fund predictions of GDP growth).

While these are macro-economic trends in the market, Canadian business owners should consider how current market trends could factor into the coming year. With the fiscal policies of large economies like the U.S. and the Euro zone influencing domestic monetary policies, Canadian businesses can use what they learn to: predict domestic consumer confidence, modify sales forecasts and inventory level projections, and quantify the effect of future commodities prices on their bottom lines.

The Canadian government has tried to retain growth in the Canadian economy by maintaining a hyper-stimulative monetary policy.3 This has meant providing Canadian businesses with historically low interest rates. However, the Bank of Canada has signaled that these rates won’t last forever. Canadian financial institutions predict small interest rate increases starting in March and April of 2013.4 Canadian business owners are encouraged to revisit their debt levels and loan agreements, and consider how increases in interest rates will affect their cash flow and bottom lines. Canadian business strategy should gear toward the expected economic environment and economy. Developing realistic expectations based on reputable forecasts will help Canadian businesses position themselves to operate effectively within the boundaries of the current economy.

While this may seem a daunting task, the partners and staff at Crowe Soberman LLP are dedicated to helping business owners assess the impact of these economic factors and implement effective strategies to mitigate any significant risks.

References:

1 – Bank of Canada Monetary Policy Report
2 – IMF World Economic Outlook update
3 & 4 – TD Bank Quarterly Economic Forecast – June 2012

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