Executives Expect Moderate Sales Growth

Despite economic upheaval and cost concerns, instrument and laboratory product company executives are optimistic about future sales growth, according to the latest IBO Business Climate Survey, which was conducted this month. Fifty-nine percent of the 22 executives surveyed by IBO expected that instrument sales industry wide would “increase moderately” in the next six months. This is the highest percentage of executives expecting a moderate increase since the fall 2005 survey. The forecast suggests the strength of sales in developing countries and their relative isolation from the effects of the credit crisis and the US downturn. However, not one executive in this month’s survey expected sales to rise “substantially”—the first time since 2004. Thus, while these instrument companies may be expecting sales gains, no company anticipates an exuberant sales environment.

Two questions on this spring’s survey focused on the US economy. Surveyed executives were asked what effect the US economic slow down has had on their companies’ sales so far this year. They were given five possible answers and asked to mark each answer that applied. The five possible answers were: canceled orders, greater resources required to make US sales, increased orders, postponed orders, and other. Half of the respondents told IBO that the slow down has had no effect on sales. However, 35% of respondents noted delayed orders and 17% stated that greater resources were now required to make a sale in the US.

Respondents were also asked what actions their companies had taken so far this year in response to the US economic slow down and asked to mark as many answers as applied. The possible answers were: monitoring expenses more closely, allocating more resources to sales in other regions, raising prices, reducing costs, none and other. Although half of the companies surveyed stated that the US slow down has not affected them, 75% have taken action in response to it, indicating that they may expect some effect. In response, 28% of surveyed companies are monitoring expenses more closely, 19% are raising prices, 14% are reducing costs, 8% are allocating more resources to other regions, and 6% have taken other actions. These other actions were more aggressive pricing and a focus on prospects with the highest probability of a sale.

A number of operational concerns weigh on companies. Executives were asked to rate six of these concerns. The greatest concern was raw material costs (see graph below). The US dollar’s deprecation was the factor of second-greatest concern, as every foreign company surveyed ranked it as a 4 or a 5. Interestingly, not one if the six concerns had an average rating of more than 4, suggesting that costs have remained fairly stable for respondents. Nonetheless, all six concerns are on companies’ radars, as not one of them received an average rating lower than 2.5.

Asked about the sales prospects for eight regions or countries in 2008, compared to 2007, China yet again received the highest average rating (see graph above). China had an average rating of 4.3. China has received the top regional rating in every IBO Business Climate Survey since fall 2004. Please note that each survey does not contain responses from the same set of companies. China was the only region in this survey to receive an average rating above 4. Asia (excluding China and Japan), Central and South America, and Eastern Europe, and, surprisingly, the US each received an average rating above 3. Interestingly, not one region or country received an average rating less than 3, indicating that, in general, companies do not expect sales to decline in any of these regions this year.

Despite the problems facing many large drug makers, the pharmaceutical industry is the top sales prospect for 2008, according to survey respondents (see graph below). This is the first time since spring 2004 that the industry has received the highest average market rating (see IBO 6/15/04). Respondents were asked to rate the sales growth prospects this year versus last year for 10 end-user markets (see graph above). Not one market received a rating above 4. However, no market received an average rating of less than 3, consistent with other results of this survey.

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