Slowdown Trifecta Sends CEOs on Mad Dash for Growth
Economic troubles gripping the U.S., China and Europe are forcing Wall Street and corporate America to play a game of global arbitrage, in a frantic attempt to eke out profits wherever they can be found.
Just as concerns mount about the U.S. "fiscal cliff", a synchronized worldwide economic slowdown has ensnared three of the world's largest economies.
Although the U.S. economy expanded at a better-than-expected pace of two percent last quarter, much of that growth was boosted by government spending and purchases by increasingly cash-strapped consumers.
Few economists expect that rate to be sustained – especially if lawmakers fail to avoid a slew of tax hikes and deep spending cuts from going through early next year. Additionally, superstorm Sandy's walloping of New York and New Jersey could undermine growth even further. (Read more: Sandy an 'Enormous Hit' to Economy: Ex-Fed Official.)
Normally, corporations look abroad for more growth when the U.S. economy endures a slowdown. Indeed, many still are: China's vast economy and emerging middle class makes it a lodestone for big companies, even if the world's second-largest economy is laboring under the threat of a slowdown.
"We're going to open up to close to 1,300 new stores next year," said Starbucks CEO Howard Schultz on CNBC's "Closing Bell" this week, after the company's earnings defied analysts' expectations. "Seventy to 80 percent of growth will come from outside of North America, mainly Asia," he added.
Yet these are far from normal times. Economically troubled China and crisis battered Europe – where a debt crisis menaces Spain and recession continue to rage – have nervous CEOs looking for growth wherever it can be found.
"China seems to be on the edge of some kind of recovery but we haven't really seen it yet. We think its coming," Caterpillar CEO Doug Oberhelman told CNBC last week. "Europe is at this stage no good news or bad news, it's just limping along." (Read more: No Recession, but Plenty of Uncertainty: Caterpillar CEO.)
The collective drag of three of the world's top seven economies makes it "tough" to earn profits amid the uncertainty, Oberhelman said.
"It's really hard to see where we're going to go with all the uncertainty in the next 60-90 days," he said. "I'm hoping a lot of that's going to clear up as we go into the winter time but we'll see."
At first blush, the best avenue for opportunities appears to be in emerging markets, primarily Latin America and India.
Both regions seem to be weathering the squall bearing down on the global economy better than developed economies, and have pockets of emerging consumers and businesses that remain untapped.
Indeed, Oberhelman cited Caterpillar's growing market share in developing economies such as Brazil, Russia, and India as illustrative of how the company's efforts to arbitrage the global slowdown are bearing fruit.
China has the rare status as a developing economy that is also a global economic heavyweight. For that reason, many U.S. companies are still willing to gamble on its vast and growing middle class, even with the risks. (Read more: China Urban Population Set to Explode — How to Play It?)
Last month, consumer giant Mondelez International's CEO Irene Rosenfeld cited emerging markets as the company's most promising avenue for growth. Rosenfeld cited India and China as "organic opportunities" that could help Mondelez expand its global footprint. (Read more: Mondelez Looks East for Growth Opportunities: CEO.)
Yet those areas of the globe are susceptible to the same slowdown impacting China, Europe and the U.S. All three are major trading partners with most emerging market economies.
For that reason, other companies are relying on paring costs as a way of making it through a period of prolonged uncertainty.
"There's certainly ... a high degree of uncertainty as we round the corner here in the U.S. and with the situation still in Europe, and that degree of uncertainty certainly affects spending both of companies and individuals," Jon Moeller, Procter & Gamble's chief financial officer, told CNBC's "Squawk Box" last Thursday.
"Given that, we're trying to focus on those things that we can control ... and that's again a very strong focus on cost savings," he added.
China's economy is not an immediate source of worry, and the U.S. is still growing, albeit modestly. Europe, however, is a real worry for many market participants and executives.
The euro zone's woes – especially debt-heavy components like Spain and Italy – have paralyzed investors. Market players are looking to both those economies as bellwethers of Europe's recovery.
"If you see a more competitive Spain and Italy…the resolution around their deficits will be much easier to resolve," BlackRock CEO Larry Fink told CNBC on Friday.
"This is a long process. There's a lot of healing, but we're going to have to be living with this push and pull, push and pull," he added.