Consistent with my commentary on these previous blogs (here and here), it appears that the UK has some real insights into the cost of what zombie companies are doing to their marketplace. In a recent article (here), the author John Brazier quotes various business commentators whose sentiment and insights would likely be replicated here in our own economy (given the extremely low interest rates and depressed consumer sentiment)
John writes that:
“These struggling businesses distort fair competition right across the economy as they underbid for contracts in their desperate ongoing battle to generate cash to keep their creditors at bay.
“The damage they cause to healthier companies can be seen especially in sectors like construction where ‘suicide pricing’ is depressing the profitability of the entire industry.”
According to the research, the construction sector currently has 26,000 ‘zombie’ companies, ahead of the media (21,000), retail (20,000), property (16,500) and hospitality (15,500) sectors.
The business services sector has over 65,000 ‘zombie’ companies with a negative net worth of £20bn.
According to the Association of Business Recovery Professionals, 497,000 people are employed by ‘zombie’ companies, and 1.3 million by acutely distressed ones – about 4.4%of the British workforce.
Hood said: ““As the economy improves, a proportion of these businesses will be able to trade themselves into stronger positions. But when interest rates eventually rise and activity levels increase, the lack of financial resources of many others will cause a surge in insolvencies for the weak and rapidly rising bad debts for their banks and other creditors.”
It would be interesting to know if data like this was collected by any Australian organisations as the insights and understandings that could be gained. I would be surprised to think that Australian ‘zombie’ businesses weren’t similarly harming our economy and slowing its ability to recover…