Written by 10:00 AI, International

Companies tighten austerity – investments focus on AI and transformation

In view of persistently high inflation, a mixed economic outlook, high energy prices and considerable geopolitical tensions, more and more German companies are putting planned major investments on hold.

53 percent of the companies surveyed by EY are currently pulling the ripcord on investments – globally, the proportion is significantly lower at 40 percent. Both in Germany and worldwide, the proportion has risen since the beginning of the year: in Germany from 29 to 53 percent, worldwide from 32 to 37 percent.

In addition, more and more companies are planning to relocate production sites: the proportion of German companies with relocation plans has risen from 30 to 39 percent since the beginning of the year, while worldwide there has been a slight increase from 36 to 37 percent.

However, companies apparently do not want to cut back on investments in artificial intelligence: Worldwide, 43 percent of companies have already invested in AI – in Germany, the share is as high as 53 percent. And 42 percent (Germany) and 45 percent (worldwide) are planning such spending. Just five percent of the German and twelve percent of the global company leaders surveyed believe they can get by without AI innovations.

These are the findings of EY’s latest CEO Survey. The study is based on a survey of 1,200 CEOs in major companies worldwide, 100 of them in Germany.

Constantin M. Gall, Partner and Head of Strategy and Transactions at EY in the Western Europe region, sees companies in a dilemma: “On the one hand, cost pressure is increasing, many companies are suffering from high energy and raw material prices, an unsatisfactory order situation and a declining propensity to buy.” On the other hand, there is enormous momentum in the transformation toward digitalization, which is currently being massively accelerated by the AI boom. “For many companies, this means they have to adopt a consistent austerity course in order to be in a position to invest heavily in the crucial areas.”

Gall advises companies not to underestimate the impact of the opportunities presented by artificial intelligence: “AI technologies have enormous potential: with AI, drastic progress can be made in automation and increased efficiency, but also in research and development and customer approach – that should have become clear to everyone this year at the latest.” The transformation efforts of companies could also be accelerated and strengthened by this technology: “Transformation is now gaining strength and speed. For company bosses, it is therefore a matter of setting the right course today, benefiting from this technology of the century and not being left behind. That’s why many companies have recently launched very ambitious AI projects – despite massive cost pressure.”

Purchases and sales come back into focus

The new momentum is also evident in companies’ M&A plans. While relocations to more favorable production locations are once again at the top of the agenda and investments that are not necessarily necessary are being postponed or stopped altogether, acquisitions and sales of companies or parts of companies are expected to provide additional agility: worldwide, the proportion of companies planning mergers or acquisitions has risen from 46 to 59 percent compared to the beginning of the year, and in Germany from 39 to 62 percent. “We will see numerous corporate transactions in the coming months that are either about becoming more flexible and powerful or about adapting the business model to new conditions and making it weatherproof,” Gall expects. Here, too, he sees AI as a catalyst for increasing activity: “The topic of AI has already caused significant price increases on the world’s stock exchanges and will continue to occupy the capital and transaction markets: Technology companies with the relevant know-how are in extremely high demand, and companies with pent-up demand are looking around for attractive targets.”

No slackening in restructuring toward sustainability

While the business world is electrified by the potential of artificial intelligence and expects a new surge in digitization, the other major transformation topic – sustainability – is in danger of being pushed into the background: Globally and in Germany, 16 percent of companies say that sustainability initiatives are at the heart of their investment strategies and that significant resources are being spent on them. For another 22 percent (globally) and 33 percent (Germany) of companies, sustainability is one of several areas where investments are prioritized. As many as 34 percent of the companies surveyed worldwide see no need to invest in a transformation toward sustainability – although in Germany the proportion is significantly lower at 15 percent.

Gall warns that sustainability must not be pushed into the background in the face of other, seemingly more pressing challenges: “A stringent sustainability strategy is not a ‘nice to have’ for good times, but is essential for the survival of most companies. Companies that do not review and optimize their business model in terms of sustainability risk being severely penalized on the stock market and even losing access to outside capital. Such companies quickly end up as takeover candidates.”

For Gall, the two transformation topics of ESG and digitalization belong together. “Both trends have such a comprehensive impact on the entire value chain and the economic environment that no company can stand on the sidelines here – economic slump or not.”

German corporations are driving the transformation

German companies are proving particularly active in this regard: 29 percent of companies intend to accelerate the transformation of their portfolio over the next twelve months, while 45 percent are maintaining their pace. Globally, 21 percent want to accelerate the change process and 42 percent want to maintain their pace. Gall also sees a great willingness to act among German companies: “In German industry in particular, there is a mixture of alarm and a mood of optimism. Everyone is aware that we are in the midst of a dramatic change process. And German corporations, with their strong international positioning and high dependence on foreign markets, are particularly sensitive to changes in the global economic environment. They cannot rest on their laurels on a strong domestic market, but must constantly prove their competitiveness anew. This requires a great willingness to change.”

Source: Pressemitteilung EY
Image: makibestphoto – stock.adobe.com

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