Although the macroeconomic outlook remains positive, signs of slowing worldwide growth have increased uncertainty among businesses. This uncertainty is reflected in the latest IBO Business Climate Survey. Instrument and lab product sales are expected to be stable, but the fallout from the global recession continues to affect growth. Also, intellectual property concerns related to doing business in China are on the minds of instrument company executives.

In its latest “World Economic Outlook,” released this month, the International Monetary Fund forecasts global economic growth will slow next year to 4.2%, following 4.8% growth this year. Emerging and developing countries will lead global growth, with their economies expanding 7.1% in 2010 and 6.4% in 2011. Advanced economies are expected to grow 2.7% this year and 2.2% in 2011.

CFOs have also dampened their expectations, according to the most recent Duke University/CFO Magazine Global Business Outlook survey, which queried 937 CFOs in September. Asked about the financial prospects for their companies compared to the last quarter, 34% of the 569 US firms surveyed were more optimistic, but 34% were less optimistic. However, in a June survey, 46% were more optimistic and 24% were less optimistic.

Among the CFOs surveyed in September at 135 European companies, 48% were more optimistic and 20% were less optimistic: largely consistent with results from the June survey. Sixty-six percent of the CFOs at the 130 Asian firms surveyed reported more optimism in the latest survey, and 13% reported less optimism. In June, 67% reported more optimism and 18% reported less optimism. As for the 103 Chinese firms, in the latest survey, 48% reported more optimism and 28% reported less optimism. In the June survey, 43% of Chinese firms were more optimistic and 31% were less optimistic.

CFOs were also asked about their companies’ capital and R&D spending plans for the next 12 months. Capital spending during the next 12 months is expected to grow at a weighted average of 9.3%, 9.2%, 6.6% and 2.8%, according to the respective Asian, Chinese, US and European companies that were surveyed. Over the next 12 months, R&D spending is expected to increase at a weighted average of 7.6%, 5.4%, 3.8% and 0.8%, according to the surveyed Asian, Chinese, US and European companies, respectively.

Like the surveyed CFOs, it appears that the 22 instrument and laboratory product executives surveyed over the last month by IBO are also more cautious. Fifty-four percent of respondents expect instrument industry sales to increase in the next six months. Although this percentage is up from a year ago, when it was 42% (see IBO 10/15/09), it is down from the Spring Business Climate Survey, when it was 68% (see IBO 5/15/10). In the survey’s history, it is unusual for this percentage to decline during the year from the spring survey to the fall survey, considering the seasonal strength of year-end sales due to budget releases.

Forty-six percent of respondents to IBO’s survey expect sales to stay the same in the next six months. This is the highest percentage that expected sales to stay the same since the Spring 2007 survey. The fall survey also indicates that pessimism seems to have dimmed. In contrast to fall 2009, no executive expected sales to decline in the next six months.

The second question on IBO’s survey was designed to determine whether companies are still experiencing six effects of the recent economic recession. Five of these six effects corresponded with effects listed in the fall 2009 survey. Respondents rated the extent to which their companies were experiencing the effects on a scale of 1 to 5, with 1 indicating no effect, 3 indicating some effect and 5 indicating a tremendous effect.

According to survey results, conditions have improved for companies. Compared to a year ago, when two effects—delayed capital spending and sales declines—received average ratings above 3, this year, no effect received an average rating above 2.9. However, aftereffects do persist. This year, each of the six effects received an average rating of 2 or above. Delayed capital spending once again received the highest average rating, at 2.8. Although this effect was rated the highest, indicating its prevalence, the decline in its average score suggests that capital spending by instrument companies is getting better, which is a sign of recovery.

“Not hiring” and “slower profit growth than historical average” each received average ratings of 2.4. These ratings were very close to the ratings received a year ago for “layoffs’ and “decline in profitability,” respectively, suggesting that both effects remain concerns for instrument companies. Likewise, the average rating for “credit harder to obtain” of 2.3 was close to its rating a year ago.

Finally, “slower sales growth than historical average” and “increased discounting” received average ratings of 2.1 and 2.0. Results indicate that sales have clearly picked up, as the average rating for “decline in sales” improved more than one point from a year ago. “Discounting” was not included in the fall 2009 survey.

The next question on IBO’s fall 2010 Business Climate Survey addressed concerns about doing business in China. Earlier this year, both the American Chamber of Commerce in China and the European Chamber of Commerce published surveys reporting increased concerns by their members about doing business in China. Among the leadings concerns in the report by the American Chamber of Commerce in China were inconsistent implementation of regulations and protectionism. The report by the European Chamber of Commerce listed lack of transparency and lack of equal market access as key concerns.

IBO listed five concerns of doing business in China and asked instrument and lab product company executives to indicate if their companies had directly experienced any of these concerns in either 2009–2010 or prior years. Forty-eight percent of those surveyed indicated that their companies had intellectual property concerns when doing business in China. For 70% of these respondents, the concerns existed both in the 2009–2010 time period and historically.

Concerns about intellectual property far outdistanced any other concerns about doing business in China about which IBO asked. Only six respondents raised concerns about the quality of manufacturing in China. But for five of these respondents, this concern was present in 2009–2010 and in prior years. Only four respondents indicated concerns over increased competition for employees, which was a surprise considering that this concern scores highly on the American Chamber of Commerce in China surveys of US businesses. Only two respondents indicated concerns about regulatory barriers to investment.

A restrained outlook is also evident is the average ratings for countries and regions for sales in the next six months. The average rating was 3.2, down just slightly from 3.3 in the survey earlier this year, indicating executives expected stable sales growth. In fact, there were few dramatic changes in the average ratings for each country or region compared to the spring. China and India were once again the only two countries to have average ratings above 3.5. The largest decline in average rating was for the Middle East. In contrast, the average rating for Japan improved.

The rankings of end-markets by six-month sales prospects, as determined by average ratings, showed a change. In the spring, academia and biotech received the highest average ratings. In this survey, electronics/semiconductor and food were ranked the highest, with their average ratings greatly increasing from the spring. Agriculture’s average rating also increased. Conversely, the average ratings for biotech and academia fell. The results suggest that the academic and biotech markets may have lost some of their momentum. The average rating for all end-markets was 3.2.

Line Graph: Executive Expectations for Instrument Sales for the Next Six Months

Fall 05 Spring 06 Fall 06 Spring 07 Fall 07 Spring 08 Fall 08 Spring 09 Fall 09 Spring 10 Fall 10

0.00 0.04 0.00 0.00 0.04 0.00 0.43 0.33 0.17 0.00 0.00 Decline

0.29 0.38 0.36 0.58 0.32 0.41 0.35 0.38 0.42 0.28 0.46 Stay the Same

0.67 0.50 0.56 0.33 0.56 0.59 0.17 0.29 0.42 0.68 0.54 Increase Moderately

0.04 0.08 0.08 0.08 0.08 0.00 0.04 0.00 0.00 0.04 0.00 Increase Substantially

Bar Graph: Six-Month Sales Outlook Avg. Ratings, Fall 2010 vs. Spring 2010

Spring 10 Fall 10

E. Europe 2.8 2.6

W. Europe 2.7 2.8

Middle East 3.4 3.1

Japan 2.8 3.1

No. America 3.1 3.2

Latin Am. 3.2 3.3

SE Asia 3.3 3.4

India 3.8 3.7

China 4.3 4.1

Bar Graph: Six-Month Sales Outlook Avg. Ratings, Fall 2010 vs. Spring 2010

Spring 10 Fall 10

Chemical 3.1 3.0

Govt. 3.2 3.1

Biotech 3.4 3.0

Pharma 3.1 3.1

Academia 3.4 3.1

Metals/Mining3.1 3.2

Energy 3.3

Agriculture 3.0 3.3

Environment 3.4 3.4

Food 3.2 3.5

Elec./Semicon.3.1 3.5