Grant Thornton: Hiring outpaces investment in machines in 2018

Businesses will turn to people in 2018 to meet swelling order books, despite the rise of automation and record global business optimism (net 58%), said Grant Thornton quoting the latest global survey findings from its own International Business Report (IBR).

Plans to hire more workers are at their highest level in a decade, said the firm. However, Grant Thornton also warned that businesses need to balance their investment decisions and take steps to boost productivity, as economic indicators point to a potential peak in the business cycle.

“What stands out is the dramatic nature of the rise in businesses planning to employ more workers – up 11 percentage points on a year ago – to net 40% from 29%, said Francesca Lagerberg, Global Leader Network Development at Grant Thornton. “Every region, globally, has reported a year-on-year increase in employment expectations.”

The desire to expand workforces comes amid healthy levels of demand, as the proportion of firms concerned about a shortage of orders falls to net 23% globally – the lowest figure recorded in a decade of IBR research, according to the company.

As a result, firms also become confident enough to raise prices, with net 36% of firms planning to do so over the next 12 months, while net 50% of firms expect higher profits compared to net 41% a year ago, Grant Thornton noted.

The IBR also finds that businesses continue to boost their investment in plant and machinery in 2018, with net 36% saying this is the case - a rise of 3 percentage points from a year ago.

However, this relatively flat pace of growth contrasts with the figures for employment, Grant Thornton observed.

In the US, net 49% of firms plan to expand their workforce, compared to net 39% who will spend more on plant and machinery, while increased investment in technology has eased during Q4 to net 44% from net 47% in Q3 2017, the company added.

How to meet growing demand

Despite talk of the rise of the machines, the easiest and quickest way for many businesses to meet growing demand is by hiring more people to boost capacity, Lagerberg pointed out.

“However, padding out the workforce is only a stop-gap solution. As unemployment falls, it will become even harder to recruit the quantity and quality of workers needed to maintain and grow productivity,” she observed.

Instead, business processes will need to become more efficient, she said, adding that while investment in technology has fallen back in the past three months, this overall change in momentum—away from tech and towards human capital—is a potential cause for concern at a time when technology offers companies one of the greatest competitive weapons.

“Optimism is soaring and expectations for increased profits are at their highest since before the global financial crisis. Firms must avoid short-termism and increase their investment in long-term growth. If they don’t, the party in 2018 could leave a hangover in 2019,” Lagerberg advised.

The prevailing confidence is most evident in the world’s three biggest economies, said Grant Thornton. In the US, business optimism is at net 79%, compared to net 54% a year ago. In China, optimism is at its highest in ten years (net 78%), while Japanese firms are in positive territory for the first time in nearly three years at net 3%.

Other highlights from the survey

  • Net 40% of businesses plan to employ more workers in 2018 (compared with a net 29% 12 months ago)
  • Net 36% plan to invest more in plant and machinery (net 33% 12 months ago)
  • Global business optimism is at its highest ever level at net 58%
  • The number of businesses expecting to see both prices (net 36%) and profitability (net 50%) rise have also reached new global highs

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