Middle market companies flourish despite global uncertainty: report
EY says companies with yearly revenue between US$1 million and $3 billion are growing globally, and their executives see economic uncertainty as an opportunity
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LONDON—Global middle market organizations are showing no signs of slowing down in the face of geopolitical uncertainty.
This is according to Ernst & Young’s (EY) Growth Barometer, a new survey which polled 2,340 middle market executives across 30 countries whose companies have annual revenues of US$1 million to $3 billion.
The survey found that 34 per cent of middle market companies plan to grow 6 to 10 per cent this year, far outpacing the latest World Bank global GDP growth forecasts of 2.7 per cent, and 14 per cent of companies surveyed have current year growth ambitions of more than 16 per cent.
EY says that in spite of geopolitical tensions, including Brexit, increasing populism, the rise of automation and artificial intelligence, and skilled talent shortages, 89 per cent of executives see today’s uncertainty as grounds for growth opportunities.
Attuned to Uncertainity
“The global economic backdrop is much stronger than what the prevailing narrative has been telling us,” said Annette Kimmitt, EY Global Growth Markets leader.
She continued, “Despite geopolitical risks and uncertainties, businesses being disrupted through new technologies and globalization rewriting the rules of supply and demand, middle market leaders are not only attuned to uncertainty, but are seizing it to grow, disrupt other markets and drive their growth agendas.”
Of all the countries represented in the survey, the United Kingdom’s middle market companies are the most confident about growth plans.
The report says that despite facing two years of Brexit negotiations, 23 per cent of start-ups (companies under five-years-old) headquartered in the U.K. are looking at year-on-year growth of more than 26 per cent.
Growth increases by American middle market firms are more modest. 35 per cent of U.S. companies surveyed are planning growth increases under 5 per cent.
China and India are in slightly better shape than the U.S., with 42 per cent of companies in these countries targeting growth rates of 6 to 10 per cent. 25 per cent of Chinese and Indian firms have current year growth plans between 11 and 15 per cent.
Talent is Key
In terms of top priorities for executives, talent was cited by 23 per cent as most important to their growth strategy, while 21 per cent said improved operations were the most critical element to expansion. Cutting red tape, 12 per cent, and benficial agreements, 8 per cent, were also viewed as crucial.
27 per cent of executives surveyed plan to increase their permanent headcount in the future. A futher 14 per cent want to employ more part-time staff, and 18 per cent plan to use contractors to fuel growth plans.
“Uncertainty has become the new normal, and while geopolitical risks and trade barriers are influential factors, middle market companies are moving ahead with hiring plans,” said Kimmitt.
This trend towards hiring more employees does not appear to be dampered by the threat of automation either, according to the executives polled. 15 per cent of respondents believe that adoption of automation will result in headcount reductions of less than 10 per cent.
EY says this optimism illustrates that middle market leaders are planning on the selective adoption of automation to bring efficiencies to some routine operations, but as an adjunct to human talent, not a replacement.
Middle market leaders cited increasing competition, 20 per cent, as the number one external threat to their growth plans, followed by geopolitical instability, 17 per cent, and the cost and availability of credit, 12 per cent.
These threats were considered far more significant than rising interest rates, 8 per cent, foreign exchange variance, 8 per cent, or commodity price volatility, 6 per cent. Only 10 per cent said slow growth was a critical threat.
“Middle market companies are the engines for global growth, representing nearly 99 per cent of all enterprise and contributing nearly 45 per cent to global GDP,” said Kimmitt.