The biggest issue in 2011 will be rising prices for raw materials, counsels Goizueta chaired marketing professor Jagdish Sheth.
“Due to greater demand for commodities, especially in growing markets like India and China, materials prices will likely jump in 2011, placing tremendous pressure on corporate margins,” he says. “This may not be a short-term trend, as consolidation is driving the emergence of OPEC-like cartels in the raw materials segment.”
Like oil, many raw materials resources belong to countries, not private sector companies, he adds.
“So you may see countries that wish to preserve their stock of raw materials or, like China, keep some off the market so they can be used for internal development,” Sheth observes. “I believe the biggest shock from this will occur in processing-type industries that do not add a lot of value through their processes.”
So steel and aluminum industries are likely to be buffeted by the worldwide price hikes Sheth anticipates, but consumer electronics and technology companies are unlikely to suffer as much.
Within the U.S., Sheth expects to see a rebound in mergers and acquisitions, as companies that sat on the sidelines during the economic slowdown — and built up their cash reserves — now see buying opportunities as a result of decreased price-equity ratios and other valuations.
“Also, there’s a push for companies to show better results, and since share buybacks are not being looked upon favorably by the IRS, companies are looking to M&As for a quick boost to their bottom line,” he says. “I think we’ll also see more cross-border, or international M&As, with U.S. companies being targets as well as acquirers.”
With the bank crisis fading and liquidity improving, Sheth also foresees a significant rise in initial public offerings, as business owners get more confident about the overall economy.
On the political front, Sheth’s not worried about the Congressional split between Democrats and Republicans.
“There’s likely to be increased cooperation between the House Republican majority and the Democratic Senate,” he says. “Just like Newt Gingrich worked well with [former President] Bill Clinton, I think that House Speaker John Boehner will work with the Senate and President Obama to cut taxes and spur growth.”
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