Print this article | Return to Article | Return to CFO.com
The rising cost of everything — from petrol to personnel — is tormenting finance chiefs around the world.
Jason Karaian, CFO Europe Magazine
September 3, 2008
Though his company makes fuel tanks for commercial vehicles, Ludwig Gold is as concerned about what goes inside the containers as the tanks themselves. The head of corporate finance and controlling at Salzburger Aluminium, like most finance executives around the world, cites the cost of fuel as one of his top concerns.
In the most recent Business Outlook Survey by CFO Europe, Tilburg University and Duke University, the soaring price of petrol was the fastest-climbing concern among more than 1,000 finance chiefs polled around the world, now ranking second on the list of external worries in Europe, Asia and the US. Dwindling consumer demand remains the top concern across the regions, as it has been for several quarters. (See "Top Ten External Concerns" at the end of this article.)
The unhappy marriage of flattening sales and surging commodity prices is putting pressure on margins at Salzburger Aluminium, driving Gold and his team into action. Purchasing teams now forecast raw materials needs on a weekly, rather than monthly, basis, given that previously minor missteps now carry major costs. He also recently convened a working capital taskforce to chase overdue invoices more aggressively, negotiate new payment terms with key partners and issue "take it or leave it" 60-day terms for smaller suppliers. Vigilance on working capital is crucial, Gold notes, as many of the firm's automotive customers are preserving funds in the face of the downturn by squeezing suppliers such as Salzburger.
Gianluca Cavina has been on the receiving end of the take-it-or-leave-it tactics recently, much to his consternation. The CFO for Italy of Momentive Performance Materials, a speciality chemicals company, laments that the strong bargaining position of the company's main suppliers — in contrast to the fiercely competitive marketplace the firm faces when selling its products — means that Momentive can pass on only around 10% of the price increases forced on it by suppliers. "We are working with the sales force to get some price increases and, internally, we are working on variable cost productivity," he says. "Those are the only two weapons we have."
Pressure on margins also comes from personnel costs. Like his counterparts around the world, Cavina cites the difficulty of attracting and retaining qualified employees as his top internal, company-specific concern. (See "Top Ten Internal Concerns" at the end of this article.) Momentive's base in Termoli, in central Italy, is off the beaten track, so it can be "difficult to find and retain good talent," Cavina says. As a result, salaries at Momentive's Italian operations are, on average, 10% to 15% higher than its competitors, according to the CFO. Besides simply paying workers more, the company is trying to keep staff happy by offering enhanced training programmes and international job rotations for workers who reach a certain level of experience.
At Salzburger Aluminium, Gold is also worried that concerns over human capital might crimp the company's growth prospects. The firm is considering an investment in a Mexican company, and also has plans to expand into Russia and Turkey. "We need local people and, of course, we have to send some of our managers there," says Gold. But corporate executives are concerned about whether the group has enough qualified staff with the skills to manage its ambitious growth plans.
Gold adds that, with a weak dollar, "it's a great opportunity to go to North America," hinting at future moves by the Austrian group. But as long as attracting and retaining suitable talent remains such a vexing issue for finance chiefs, deals that make financial sense may come undone if there aren't enough good people around to manage them.
Jason Karaian is deputy editor of CFO Europe.