AB

62 Corporate | Profits
Profits squeeze
Competition for global corporate profits is heating up, so businesses must adjust
their long-term strategies to earn their fair share of future gains
The past 35 years have marked the
longest run of rising profits in the
post-war era. According to research
by the McKinsey Global Institute, from
1980 to 2013 global corporate post-tax
operating profits grew 30% faster than
global GDP; today they stand at 9.8%
of global GDP, up from 7.6% in 1980.
But McKinsey says this is the peak and
corporate profit growth will slow to 1% a
year over the next decade – a fifth of the
average rate over the past 35 years.
Global production and labour costs are
rising, while the competitive landscape
is becoming more complex. Established
businesses are being challenged by
innovation, new digital technologies and
fast-growing newcomers from the sharing
economy and fintech sectors. In the
meantime, Amazon, Google, Facebook
and Apple continue to increase their
global reach and have begun entering
travel, mortgage, insurance, telecoms,
food delivery and automotive markets.
Also, although North American
and Western European companies
now capture more than half of global
profits, McKinsey predicts they will
face slower profit growth as emerging
market companies continue to muscle
in on the global profits pool. In 2013,
these companies accounted for 32%
of global profits already, with China
leading the way (14%).
Political climate
The effects of international politics in the
years to come may dampen corporate
profits, too. Michael Mayer, professor of
strategy at the University of Bath’s School
of Management, says: ‘The political
environment will be less predictable
and potentially more salient than at
any other time since the Second World
War. The multi-polarity and fragility of
relationships is likely to play a greater
role in disrupting sector developments,
as well as company strategies.’
In this landscape of fiercer
competition, some businesses and
sectors are likely to do better than
Accounting and Business 07/2016