Phillip M. Perry (Nov 08)
Businesses of all sizes will be hit by an
increase in the cost of goods sold, driven by higher energy prices.
Pricier fuel translates into higher costs for production and for
transportation to end users, putting pressure on manufacturers, service
businesses, and retailers alike. And on the buy side, consumers are
shelling out cash for energy that they would otherwise spend on goods
and services. "Home heating costs will be significantly higher this
winter than they were last year," says Hoyt.
While the cost of
oil has been trending down in recent months, the decline is not steep
enough to make up for the sharp increases of 2008. "Even if prices go
down further they are not expected to get to where they were earlier in
the decade," says Koropeckyj. The reason is growth in demand from China
and India. "There is more demand in general and less ability to drill
for more oil easily at a low cost," she says. The price for a barrel of
oil is expected to be $111 by the end of 2008 and $93 by the end of
High energy costs can affect profits. "The energy issue is
becoming a bigger and bigger issue in our profit and loss statements
and I don't know where the end is," says Smeltzer. "I think what will
happen is, manufacturers and others will begin to migrate more
frequently in search of lower energy costs just as they have done in
the past for lower labor costs."
Weathering the Storm
can you stay afloat in rough seas? Keep looking for ideas in technology
and system improvements to get more done with fewer labor hours. This
has been a winning tactic in recent times. Productivity increased by
some 3.03 percent in 2008, according to Moody's Economy.com. That's an
improvement over the 1.41 percent of 2007. And there's more good news
ahead: Productivity growth is expected to increase by some 2.54 percent
Want another profit strategy? Look to foreign markets.
Moody's Economy.com expects exports to increase by some 6.9 percent in
2009. While that represents a moderation over the 8.78 percent increase
clocked in 2008, there is still room here for new players. "There is
great opportunity in export-related capital goods," says Simson. "If
you make a widget that Europeans can buy, I would get distribution in
Europe as quickly as possible. This is a wonderful time for exports. It
will be the only game in town for the next three years."
good news for exporters is that the dollar, despite some recent
strengthening, is expected to remain weak against the Euro in 2009. By
the end of that year, Moody's Economy.com predicts, it will take $1.39
to buy what a single euro can. That represents only a minor
strengthening over the $1.52 clocked in 2008.
As you enter the
new year, avoid panic and remember that you can't cut your way to
profitability - you also have to create new initiatives that boost
sales by offering customers real value. But plan those moves carefully,
keeping one eye on the risky environment. "Be sure of your projects
before you invest in them," says Simson. "Take a second look at
everything. If you don't keep the shower curtain inside the tub, you
may end up with water all over the floor."