The current economic recession is now truly a global phenomenon, with market conditions in the U.S., Europe and APAC regions all displaying similar trends. Companies worldwide are facing a new financial reality and uncertain future prospects. However, the recession has also created significant opportunities for buyers; primarily because market forces are driving prices down across a number of different indirect spend categories. The supply and demand relationship is being shifted, with the current economic situation impacting demand in a number of ways:

• In efforts to reduce costs, corporations are putting many of their spend areas on hold.
  - We see this primarily for capital spend and staffing.
• Workforce reductions limit personnel cost, as well as decrease the demand for equipment, MRO items, etc.
• Companies are experiencing tighter lending requirements, which limit funding and available budgets.
  - Buyers, both in the public and private sectors, are preparing to adjust their budgets in accordance with the new financial reality.

As a result of these and other demand reductions, several markets can now be characterized as buyers’ markets. Suppliers—suffering from reduced demand and revenue streams—are hungry for business, and are willing to be competitive to retain current and secure new business. Even a traditional supplier’s market such as the hotels market has now shifted in favor of buyers. The downturn in the economy has a profound impact on the hotel market, with corporations limiting business travel and private consumers traveling less for leisure. Moreover, several hotel chains were in the process of increasing their capacity as a result of past demand. The combination of these conditions has shifted the market in favor of buyers.

As mentioned, the recession is of a global nature, and the trends as described in the U.S. are also present in Europe, where the first quarter of 2009 is showing extremely weak hiring expectations for the vast majority of European countries. According to Manpower’s Employment Outlook survey, all European countries are showing a weaker outlook compared to the fourth quarter of 2008. Many companies are taking a “wait and see” approach before making any changes to staffing levels. Additionally, many companies look to temporary employment rather than permanent hires until they are confident that the market has stabilized. Correspondingly, we expect to see increased sourcing activity for temporary labor services throughout the year. Industry sectors hit particularly hard include the manufacturing and construction sectors, both reporting weak industry sector outlooks, particularly in France and the United Kingdom. Construction in the UK is reportedly down by as much as 19 percent, while in France manufacturing is down by six percent. A major contributor to the manufacturing downturn is the automotive industry, which has been significantly impacted by the current recession. The credit crunch continues to have a dramatic impact on the housing market, which directly impacts the construction industry. Many homeowners are choosing to stay in their current residence due to uncertain interest rates. In the UK, buyers are faced with reduced lending opportunities as the option of 100 percent financed mortgages has been eliminated.

The question for most buyers is how long current market conditions will prevail. Though it is hard to imagine a fast turnaround, we encourage buyers to take advantage of their opportunities now. Suppliers can only reduce their prices so much, and current price levels in several markets are at their lowest points experienced in years. With the upcoming economic stimulus package in the U.S., there is a belief in the market that this will cause an upturn. The package is designed to alleviate the ongoing credit crisis, start the revival of the credit market and generate increased demand both from individuals as well as public and private sectors.

In conclusion, the current demand and supply imbalance is creating savings opportunities across a wide variety of indirect spend categories, which are highlighted in more detail below. The impetus for buyers is to take advantage of current conditions, and execute their sourcing projects now.

Top Areas for Sourcing

U.S. Focus

by Nicoleta Diaconu