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‘We did not predict the incremental strains on the business from the worldwide widespread economic uncertainty, especially in the United States,’ said Ursula Burns, chief executive officer of Xerox Corp. (Ramin Talaie/Bloomberg)
‘We did not predict the incremental strains on the business from the worldwide widespread economic uncertainty, especially in the United States,’ said Ursula Burns, chief executive officer of Xerox Corp. (Ramin Talaie/Bloomberg)

ECONOMY

Multinationals retrench in face of gloomy outlook Add to ...

A litany of warnings from senior executives at multinational corporations is signalling that the world’s economy faces a significant slowdown for the next several quarters, with a recovery not likely to kick in until the second half of 2013.

The global slump has also pushed some companies to cut staff and retrench, although many are expecting a brighter picture likely to emerge by the middle of next year.

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The corner-office warnings have come from a diverse range of businesses across the industrial spectrum, particularly those exposed to the vicissitudes of the turbulent global economy.

“Weaker economic conditions, particularly in China and Europe, are reducing demand,” cautioned Ellen Kullman, CEO of chemical giant DuPont.

“These difficult conditions may have extended staying power,” added Andrew Liveris, chairman and CEO of Dow Chemical. “The new reality is that we are operating in a slow-growth and volatile world.”

Texas Instruments chief financial officer Kevin March, speaking to analysts on his company’s conference call, clearly outlined that political concerns accompany the economic worries for his electronics company – and many others with global exposure.

“In the U.S. you have a fiscal cliff [causing uncertainty],” Mr. March said, along with the potential change in government after the coming election. In China, he noted, there is also looming political change, with a change of government set to take place shortly.

And in Europe, “everyone knows there is a serious debt problem that must be addressed and that is going to require some meaningful change.”

Millan Mulraine, senior strategist at TD Securities in New York, said the discouraging messages from the executive suite are consistent with economic reports emanating from around the world.

“I think the majority of corporations with global operations are, at this point, looking at a much more subdued economic environment over the next nine months or so,” he said. “The big industrial corporations with tentacles all over the globe are the ones that have seen the biggest downgrade to their earnings expectations.”

Mr. Mulraine said the weakness in Europe and China is key to the plight of the multinationals, while “domestically, in the U.S. things are okay [but] not great.” He said TD’s long-term view matches that of many executives – that the global economy is likely to improve in the second half of 2013. “We know that what is going on in Europe is not likely to persist much beyond that.”

Several companies, sensing a need for belt-tightening in this worrisome environment, have made sharp cuts in their work force. Among those announcing layoffs in recent days were Dow Chemical, which will trim about 2,500 people, or 5 per cent of its work force and close about 20 manufacturing facilities – ranging from a polyethylene plant in Belgium to an epoxy resin plant in Japan.

Other job cuts were announced by DuPont, which said it will cut 1,500 people, or about 2 per cent of its work force, in the next 12-18 months; toothpaste maker Colgate-Palmolive Co., which will chop 2,300 jobs; Ford Motor Co., which is shutting three factories in Europe and eliminating about 6,000 jobs; and consumer product maker Newell Rubbermaid, which said on Friday it will let go more than 10 per cent of its work force. The Financial Times of London reported Friday that Swiss-based bank UBS will soon announce 10,000 job cuts.

Quincy Krosby, a market strategist with Prudential Financial Inc., said there will likely be more job cuts among multinationals if the global economy does not show some signs of life very soon. Corporations learned the lesson during the 2008-2009 recession that they need to make deep cost cuts very quickly when their revenues start to go soft, she said. Consequently, “if they don’t see a quick turnaround in demand, you will see them cut.”

The problem, Ms. Krosby added, is that there has been so much expense trimming in the past few years, that there is not a lot of room to manoeuvre. “It isn’t as if they had suddenly fattened up. The real question is, how much can they cut?”

As for the muted optimism executives have expressed that there will be a stronger global economy in the second half of 2013, Ms. Krosby says that stems from a feeling that all the efforts at stimulus will kick in by then. “The optimism comes from the belief that this will ultimately filter through to demand.”

 

________________________

EXECUTIVES SPEAK OUT

 

“Consumer markets reflect the effects of the overall weakness in the global economy.” Ron Wirahadiraksa, CFO, Koninklijke Philips Electronics

 

“We … continue to experience the underlying uncertainty in the global economy, most evident in Europe, which remained a very difficult environment.” Rich Kramer, CEO, Goodyear Tire & Rubber

 

“The drop in organic sales is just a reflection of the global economic environment. North America is still struggling to gain traction, [there is] a slight recession in Europe and slowing growth in emerging markets.” Greg Hayes, CFO, United Technologies

 

“Our market has weakened and we expect it will remain so in the fourth quarter as the overall world economy continues to be soft.” Kevin March, CFO, Texas Instruments

 

“The times aren’t easy.” Martin Winterkorn, chairman of the board of management of Volkswagen AG

 

“Weaker economic conditions, particularly in China and Europe, are reducing demand” Ellen Kullman, CEO, DuPont

 

“When the economic crisis began in 2008, few people thought the environment would still be as uncertain and fragile as it is today. It is clear, however, that this operating environment is the new normal.” Don Thompson, CEO, McDonald’s

 

“The global economy is uncertain, and we are prepared for a variety of economic outcomes.” Jeffrey Immelt, CEO, General Electric

 

“Unfortunately, global trade continues to be slower than any of us would like at this point in time.” Scott Davis, CEO, UPS

 

“We’ve seen continued economic weakening and uncertainty. It is definitely impacting our business.” Doug Oberhelman, chairman and chief executive of Caterpillar Inc.

 

“We recognize that these difficult conditions may have extended staying power, as the new reality is that we are operating in a slow-growth and volatile world.” Andrew Liveris, chairman and CEO, Dow Chemical

 

“We did not predict the incremental strains on the business from the worldwide widespread economic uncertainty, especially in the United States.” Ursula Burns, CEO, Xerox

 
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