It is not hard to grasp the difficulties facing manufacturing companies today. Newspaper headlines tell stories of falling orders, plant closings, asset sales and job losses in the thousands.

But a global survey of manufacturers conducted by the Economist Intelligence Unit in February and March found that, although a high proportion are affected by the downturn, a surprisingly large number—given the economic gloom—say they are optimistic about prospects for business over the next 12 months. Many express confidence in their ability to retain customers and attract new ones, to expand into new markets and secure a resilient supply chain. Others see the slowdown bringing with it opportunities, from hiring talented workers to redesigning products and processes.

Whether this optimism is justified may not become evident for some time. Separate Economist Intelligence Unit research suggests that, although economic stimulus packages currently under way have a 60% chance of restoring stability by 2010-11, there remains a 20% probability that the world economy will enter a depression.

There is no doubt that on a range of issues, including access to capital, profitability, return on equity and ability to increase output, many respondents to our survey believe that their companies cannot achieve the targets they were reaching a year ago. What emerges from our survey and from subsequent interviews with senior executives is that manufacturers acknowledge the problems they face and the need to cut costs. But they also have clear ideas about implementing progressive strategies—not just to ride out the storm, but also to emerge in a stronger position once economic recovery is in sight.

Key findings from the survey are highlighted below.

Companies reveal a surprising level of optimism given the economic gloom. The largest proportion (28%) of respondents say they are affected by the recession and expect their company's business prospects to deteriorate. By contrast, the second-biggest group (24%) see the outlook as good and expect business prospects to improve in the next 12 months. However, the balance of negative and positive results suggests that our respondents are uncertain about the likely length and depth of the downturn.

Few companies are anticipating a prolonged downturn in business, although 2009 will be a tough year. Many respondents (39%) expect conditions to improve for their company's business within 24 months, compared with almost one-half (47%) who see this as applicable to their sector as a whole. Meanwhile, 34% anticipate an upturn in business within the next year, and only 10% believe that an improvement will not be felt within the next two years.

Manufacturers face a wide array of challenges in the current downturn. More than half of the respondents are pessimistic that pressure on prices will have a large negative impact on their businesses in the next year. This pressure is also seen as affecting the outlook for manufacturers' customers, with some 62% citing this as a concern. "We see it clearly in that many of our customers all over the world are becoming very careful with their capital investments," says Nils Bjorkman, executive vice-president responsible for worldwide commercial operations at Tetra Pak. Strong pessimism was also expressed about availability of credit and exchange-rate movements (both 26%), while supply base stability and energy costs (both 22%) also rank highly as negative factors.

Cost-cutting emerges as the most common means of responding to the economic downturn's impact on business. Many respondents say staff and benefits cuts (44%) would do most to improve their cash positions, followed by new partnerships with low-cost suppliers (41%) and reduced energy consumption (36%). "Pushing back on costs" was cited by the largest group of respondents (62%) when it came to ensuring the resilience of their supply chains. Lay-offs are a big part of this—Boeing, for example, recently announced cuts from its commercial aircraft unit of 4,500 jobs, or almost 7% of the division's workforce.

Supply chain resilience is seen as a critical factor in business survival. The failure of suppliers' businesses emerges as the greatest concern, with 63% of the manufacturers surveyed citing this as having an immediate impact on their own supply chains and 56% seeing this as hampering their procurement strategy. The problem is acute in the car industry supply chain, where specialisation and extreme interdependency mean that the failure of even one or two small firms can bring vehicle assembly lines to a halt. In addition, more than one-half of respondents cite lack of access to capital (56%) and energy and raw material price volatility (55%) as having an immediate impact on their supply chains.

Many manufacturers see the downturn as a time to enhance their efficiency. The biggest group of respondents (63%) believe improvements to operational efficiency, both externally by rationalising supply lines and internally by using downtime to work on enhancing process efficiency, will do most to enhance their company's competitiveness, whereas almost one-half cite changes to their organisational structure (46%). Investing in research and development (R&D) for product and process innovation (45%) also remains important.

Companies see a variety of business benefits emerging from the recession. Almost one-half (45%) of respondents see the growing availability of talented workers as helping their business, compared with 42% who point to the advantages of reduced competition as other companies in their sector fail. Meanwhile, merger and acquisition (M&A) possibilities rank highly (39%) as business opportunities, along with lower interest rates (37%). For Hewlett-Packard (HP), a manufacturer and supplier of computers and printers, the acquisition of EDS, a technology services company, in May last year has generated new business in helping clients to cut their costs. "Outsourcing is fabulous," says Maurice FitzGerald, head of Strategic Initiatives at HP's technology solutions group for Europe, the Middle East and Africa. "In our EDS business, the outlook for sales has never been in better shape. What that says is more large corporations are considering outsourcing for short- and medium-term cost cutting."