Businesses feel the squeeze as price competition intensifies

Over two thirds of businesses believe that price competition will intensify over the coming year, according to the 2005 Sage Heartbeat Survey.

The assessment of the coming 12 months sees company bosses forecasting an increase in costs across the business. This includes 32% of businesses that expect investment in IT to increase. According to the survey, this increase in competition and costs means that a fifth of businesses expect to be less profitable in the year ahead - a three-fold increase from the same time last year.

Compared to last year, recruitment costs are expected to be down and the indication is that companies are not expecting to take on new people, preferring to hang on to the staff they’ve got.

This is backed up by the confirmation that investment in salaries is expected to increase - along with costs associated with employee benefits. 64% of Scottish bosses expect salaries to increase compared to just 44% in Wales.

When it comes to competitive pressures on business, access to quality staff is still top of the list followed by pricing pressure. In terms of competition on price, the West Midlands feels the most squeezed, whereas when it comes to competition for quality staff, Wales feels the most pressure, followed by the West Midlands, then London.

“The results show that profits are being squeezed as price competition increases. The expected increase in IT investment indicates that many businesses are looking to technology as a means of increasing efficiency and cutting costs,” says Jo Ray, Managing Director, Small Business Division, Sage (UK) Limited.

As part of the Heartbeat Survey, Sage has established the Investment Index and Pressure Index to identify the levels of confidence in business by tracking investment intentions of businesses and competitive pressures facing business. The metrics will be tracked over time to provide a unique insight into the challenges facing UK businesses.

More than half (53%) of respondents believe there has been an increase in the number of UK-based competitors. The most competitive region of the country is Northern Ireland, according to the survey, where businesses are competing against more competitive businesses than anywhere else in the UK.

Sage Business Heartbeat Metrics

The Sage Business Heartbeat Investment Index identifies the levels of confidence in business by tracking the investment intentions of businesses in nine core areas of business: buildings/premises, heavy machinery, IT, marketing, research and development, recruitment, staff benefits, staff salaries and training [see Table 1: 'Sage Investment Index'].

The Investment Index is measured on a scale of +1 to -1 with a score of 0 indicating no change is expected in investment levels over the coming year; +1 indicates 100% of all companies will be investing more; -1 indicates 100% of companies will be investing less.

· The Sage Business Heartbeat Pressure Index identifies the competitive pressures facing business and the degree to which they are impacting business [see Table 2: 'Sage Pressure Index'].

The Pressure Index is measured on a scale of +1 to -1 with a score of 0 indicating no change is expected in pressure levels over the coming year; +1 indicates a dangerous pressure level and; -1 indicates that no pressure is being felt in this area.

Sage Heartbeat Survey

The Sage Business Heartbeat Survey is based on responses from 2,554 UK business decision makers from the Sage customer database of over 600,000. The survey sample is weighted to reflect the UK’s 1.6 million VAT-registered businesses according to DTI figures. 72% of all respondents were the owner, CEO, managing director, chairman, founder or general manager.

The Sage Business Heartbeat Survey is a regular study representing the views of UK business owners and heads of business. If you would be interested in submitting subjects for the Heartbeat Survey to investigate, please contact us.