EY survey shows 85 percent of middle market companies plan revenue growth of more than 6 percent in the next 12 months. Embracing cognitive technologies and hiring diverse full-time talent are top priorities for global middle market executives.
Innovation is being driven by increased regulation
Middle market companies across the globe are significantly more optimistic about business conditions and opportunities than last year, according to the findings of the annual EY Growth Barometer released today. Growth prospects for all major economies are finally improving in 2018, with International Monetary Fund forecasts currently at 3.9 percent for the year, and amid this positive background, business leaders are bullish about revenue growth.
The annual survey of 2,766 middle market executives across 21 countries and nine key middle market sectors reveals that global confidence in business growth has strengthened in the last 12 months, with 60 percent of companies targeting growth between 6 percent -9 percent and no respondents looking at decline, compared to 5 percent in 2017. Middle market company leaders are planning for higher revenues, creating more full-time jobs and implementing disruptive technologies to meet ambitious growth targets. However, despite this optimism, a shortage of cash flow, access to credit tightening or slowdown in global demand could pose significant risks in the longer term.
Annette Kimmitt, EY Global Growth Markets Leader, says: “We are seeing a rare synchronisation of growth across all major global economies that is boosting executive confidence, particularly led by the Asian-Pacific region. For the first time, middle market company leaders are getting ahead of change and shaping their businesses through investment, expansion and prioritisation to ride the wave of opportunity.”
Growth ambitions being driven from Asia Pacific
While middle market companies are bullish on growth on a global scale, ambition is highest in Asia Pacific as the much-forecasted tilt from the West emerges from potential to reality. Four in ten companies in China, Southeast Asia and Australia are targeting double digit growth, some 13 percent more than the global average of 6 percent .
The race to embrace AI
Intelligent automation and machine learning have moved centre-stage as vital enablers to ambitious middle market growth and attitudes towards new technology have evolved rapidly since last year. In 2017, almost three quarters (74 percent ) of global middle market CEOs said they would never adopt robotic process automation (RPA), yet just 12 months later 73 percent of respondents say they are already adopting or planning to adopt artificial intelligence (AI) within two years.
Against this background, the Growth Barometer findings reveal that companies are recognising the need to become more agile. However, in their eagerness to adopt revolutionary new technologies and incorporate AI into their businesses, company leaders are in danger of under-estimating the scale of cyber threats, findings show. For example, just 7 percent plan on investing in technology to reduce the risk of cyber-attacks in the upcoming year, and only 6 percent see cyber threats as a challenge to growth.
Regulation driving, not stifling, innovation
This year regulation has emerged as driving change not obstructing it. In a major shift in opinion, leaders from all sectors and regions, except in North America, regard regulation as a key driver of innovation (25 percent ), topped only by profitability (27 percent ). As governments use policy levers to accelerate social good (reduced sugar in carbonated drinks and less toxic pesticides, for example) company leaders are grasping these new opportunities in the market to innovate and grow, the Growth Barometer finds.
Sector convergence accelerates
Industry convergence has risen as another major disruptive force to growth, with almost one in four global business leaders (23 percent ) seeing it as second only to demographic shifts (33 percent ) as having the most significant impact on business. Among US leaders, convergence is the top disruptive force to growth ambitions (31 percent ).
Kimmitt says: “Successful and profitable responses to convergence favour the fast. Companies can adjust to rapid disruption by pivoting from their initial value proposition and company offering to provide a service within the same industry that has a higher demand. Agile companies who can adjust their offering or business model to align with a shifting consumer environment are the ones who will thrive.”
Concerns over cash flow and funding remain
While access to credit continues to be an issue, this year company leaders cite insufficient cash flow as a more significant challenge, with more than one in three (35 percent ) ranking it first. The lack of working capital trumps both risks of technological disruption and lack of skilled talent. The problem is most acute in Europe where it is ranked first by 37 percent of respondents led by French CEOs, half of whom (50 percent ) place it in pole position.
Meanwhile, women-led companies are significantly affected by a lack of funding, with nearly one in five (18 percent ) citing access to capital as a major barrier to growth, compared to 11 percent of their male-led peers. Furthermore, one in five women-led companies have no funding plans, compared to just 3 percent of male-led peers.
Kimmitt, says: “The funding gap matters because companies with high-growth potential that fail to secure early investment can have a harder time scaling-up, and much of the time, these companies are led by women. Financial support for women-led businesses represents a major challenge and only a handful of organisations around the world are focused on supporting the growth of women-led businesses.”