BDO survey: US tech firms fear trade war and Chinese innovation

Tech company chief financial officers are bullish about their company's short-term futures but are distracted by numerous regulatory and data privacy issues.

Trade wars and the rise of Chinese innovation are the top concerns of tech companies, according to a survey of 100 chief financial officers of US tech companies from accounting firm BDO.

A recession is likely within two years said 70% of CFOs, but they are highly confident in the health of their own businesses, at least over the coming year, with 89% expecting improved profitability, and 91% predicting increased revenues.

The 2020 BDO Technology CFO Outlook survey questioned CFOs at tech companies with annual revenues ranging from $100 million to $3 billion. Nearly three-quarters were in the US only, while 26 operate in other global locations. 

China is "the elephant in the room," says BDO. "China has long been perceived as a threat to the US tech industry, and CFOs make it clear that the threat is now at their door."

Seventy-one percent of the CFOs said it was inevitable that Chinese innovation will eventually enable the country to surpass the US tech industry, and 41% expect it to happen very fast, within five years. 

Most of them (81%) expect to increase headcount in 2020, and nearly three-quarters expect to invest in beefing up their HR departments to improve recruitment and retention.

When raising investment capital, four times as many CFOs (35%) prefer private markets than an IPO (9%). 

They are split 50/50 on the subject of the need for additional government regulation of tech companies. They are nearly unanimous: 90% are concerned about compliance with taxes on digital businesses proposed by countries in the European Union. 

Data privacy issues are a big risk to their business said more than a third -- and 29% said a data privacy breach "is the top threat to their business in 2020." 

Foremski's Take

BDO is a giant accounting and financial services firm so it is understandable that accounting and tax issues were well represented in the survey  But where are the questions about innovation? 

The CFOs are complaining about the rise of Chinese innovation, yet their focus is on spending money upgrading their HR departments, investing in plugging computer security holes and preventing data privacy breaches, and the majority (53%) CFOs plan to increase spending in their financial departments. 

A lot of investments around compliance and spending money keeping the company regulated and its data protected. These investments do nothing to improve productivity or profitability. What about investments and concerns about their core tech business? 

The only clue is that 66% of CFOs will increase R&D spending this year but 34% won't. R&D spending is a catch-all for many things and does not say much about investing in technology, but additional survey questions could have probed deeper. 

Maybe we could have discovered why the CFOs have such a defeatist attitude toward competing with Chinese tech companies, and what options they have. 

After all, there's no point in having a finance department and hiring a big accounting firm if the main business hits trouble.