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Business News

A few businesses find one man's poison is another man's meat

While the austerity measures that are starting to be announced by the Government are being met with dread by most companies, for some the spending cuts are just what the doctor ordered.

Groups that offer so-called business process outsourcing (BPO) – performing tasks cheaper than the Government can do them itself – are said to be looking forward to many of the expected cuts. Sources close to Capita, the FTSE 100 company that specialises in BPO work, say that the group is gearing up to offer its services to both central and local government departments, which have been told by the Treasury to strip budgets.

Outsourcing groups that work on a variety of infrastructure projects are likely to struggle, as programmes such as the Government's Building Schools for the Future are pared back. But the fiscal tightening is not likely to affect groups such as Babcock, which work under vital contracts, including the maintenance of nuclear facilities.

Similarly, Serco, another outsourcing company, which runs vital services such as London's Docklands Light Railway, on Monday penned a deal to build and run a new prison in the capital, another vital service. Contract wins like the prison deal will be vital to companies like Serco, which has lost nearly 10 per cent of its value since the Government began outlining the areas it was preparing to curtail.

Retailers will be hit indirectly by the cuts, as consumers that work in the public sector – and there are a lot of them – lose their jobs or decide to save in case the axe should fall in their direction. The nation's shops will also be at the coalface, dealing with the planned VAT increase.

But for some, the austerity measures are an opportunity to gain market share. Groups that sell food are seen as defensive when the economic squeeze is on, and the evidence points to the discount supermarkets, such as Lidl and Aldi, enjoying increased sales and market share when we hit a recession.

Of course, there is a good chance we will avoid a much feared double-dip downturn, but the discount groups will no doubt be looking forward to cashing in on people's limited spending power.

During the recent economic downturn Aldi enjoyed a 25.7 per cent sales increase in the 12 weeks leading up to Christmas in 2008.

Lidl's sales soared by 11.2 per cent in the same period, and both saw sales increases return to something close to 2 per cent once the recovery began.