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CEO Daily Brief – Jan. 3, 2011

U.S. Business May Spend More on Factories, Retail Stores and Hiring Big U.S. companies are expected to start spending much …

U.S. Business May Spend More on Factories, Retail Stores and Hiring

Big U.S. companies are expected to start spending much more of all that money they have been sitting on. According to a report from The Wall Street Journal, large U.S.-based companies may spend significantly more on factories, retail stores and hiring.

The Journal reports that money – held by 419 nonfinancial companies in the Standard & Poor's 500 list – at the end of the third quarter 2010, was 49% higher than before the recession started, some three years ago. Debt was 14%, also lower than before.  In 2010, money increased 10.6% from the 2009 level, and debt increased just 2%.

In addition, profits are higher. Total U.S. corporate profits in the third quarter rose 26% from the same period in 2010 to $1.64 trillion. This represents the highest profits in four years.

The Republican victories in the November election is likely to lead to fewer mandates and less regulations, and changes in the health insurance plan enacted by the Democratic-controlled Congress. That could lead to lower costs for business.

Many companies are investing in faster growing regions, such as those in Asia, Latin America and Africa, rather than Europe or the United States.

It is true that growth in U.S. corporate profits may slow in 2011, as businesses during the year will be compared to higher year-earlier comparisons. Higher sales are leading them to invest more money in plant and equipment and to hire more employees.

The Journal reports that many CEOs remain concerned about the increased costs of raw materials, energy and commodities. In addition, the high rate of unemployment limits what consumers can spend.

For more on the outlook for 2011, as reported by The Wall Street Journal, please click here.


2011 Could See More Acquisitions, IPOs among Technology Companies

CEOs can expect 2011 to be a year of many acquisitions among technology companies, based on recent projections. Bloomberg reports that there were over $100 billion in acquisitions among technology companies during 2010. But given the demand for cloud computing and security services, acquisitions are expected to rise during 2011. Bloomberg points out that Hewlett-Packard, IBM and Intel were among the leaders in acquisitions of technology companies in 2010 but they still have large amounts of money which they earned during the recession and held onto, are expected to spend a lot of it on acquisitions.

Drew Guevara, head of West Coast technology investment banking for Morgan Stanley, also points out that increases in global technology Initial Public Offerings in 2010 makes 2011 a promising year for acquisitions, says Bloomberg. Globally, there were 94 IPOs from technology companies in 2010, up from 54 in 2009, Bloomberg reported.

When it comes to venture capital, Larry Sonsini, an attorney who specializes on technology buyouts and IPOs, predicts more investments in such areas as: cloud computing, clean technology, alternative energy, life sciences and the Internet, Bloomberg reports. He adds that his business clients are ready to make global investments in technology during 2011.

For more about acquisitions and IPOs during 2011 among tech companies, as reported by Bloomberg, please click here.


Golden Age for Innovation Predicted

Most companies realize that innovation can make them more competitive.  Many opportunities exist in 2011 and beyond. Scott Anthony, managing director of Innosight Ventures, said a “golden age” of innovation is on the way. But the hardest part of innovation is in “the first mile.” This part of the process focuses on the “critical first step” which starts with a “plan that looks great on paper” and leads “to a revenue- and profit-producing business,” Anthony explains.

He said innovation can be found in places like Silicon Valley but companies from Asia need to be looked at too. He says innovative businesses can be found in China, Indonesia, Singapore and India.

Innovation today is accessible. Entrepreneurs can build successful start-up businesses for less than $10,000. But now larger, more-established companies will be focusing more on innovation and are expected to start businesses that cannot be started by smaller firms, says Anthony.

Larger companies need to make sure they are not blocking innovation, warns Anthony. For instance, many companies have “policies that punish prudent risk taking,” Anthony says. Businesses also need to find methods “to track, measure, and reward people following behaviors consistent with successful innovation.”

For more about Anthony’s comments on innovation, from the Harvard Business Review, please click here.

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