Optimistic Future

Growth and hiring on the cards for businesses.

Optimistic Future

Rest of World

The annual EY Growth Barometer Growth has found that middle market companies across the globe are significantly more optimistic about business conditions and opportunities than they were last year. This year sees prospects for all major economies finally improving with International Monetary Fund forecasts currently at 3.9 per cent for the year, and amid this positive background, business leaders are bullish about revenue growth.

The Barometer is based on a survey of 2,766 middle market executives across 21 countries and nine key middle market sectors. Overall global confidence in business growth has strengthened in the last 12 months, with 60 per cent of companies targeting growth between six and nine per cent and no respondents looking at decline, compared to five per cent 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.

“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,” says Annette Kimmitt, EY Global Growth Markets leader. “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.”

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 per cent more than the global average of six per cent.

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 per cent) of global middle market CEOs said they would never adopt robotic process automation (RPA), yet just 12 months later 73 per cent 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 underestimating the scale of cyber threats, findings show. For example, just seven per cent plan on investing in technology to reduce the risk of cyber-attacks in the upcoming year, and only six per cent see cyber threats as a challenge to growth.

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 per cent), topped only by profitability (27 per cent). 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.

Industry convergence has risen as another major disruptive force to growth, with almost one in four global business leaders (23 per cent) seeing it as second only to demographic shifts (33 per cent) as having the most significant impact on business. Among US leaders, convergence is the top disruptive force to growth ambitions (31 per cent).

Kimmitt says: “Successful and profitable responses to convergence favor 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.”

 

Hiring diverse and skilled talent key to growth ambitions

In a show of confidence that growth is sustainable, 39 per cent of companies plan to hire full-time talent in the next 12 months. This is a significant increase from 13 per cent in 2017. Moreover, only 1 per cent of respondents are seeking to reduce their staff, down from 9 per cent in 2017. In fact, attracting talent with the right skills tops the list of growth accelerators – ahead of process efficiencies and new technology.

Diversity has shot to the top of the recruitment agenda, with 41 per cent of respondents citing it as the greatest hiring priority compared to only 11 per cent in 2017. The report findings indicate that there is a strong correlation between CEOs prioritising diversity as a recruitment objective and those with the least diverse executive teams. 

For those companies who have already built diverse executive leadership, the focus is on talent with strong digital skills, according to the Growth Barometer. Over half (56 per cent) of company leaders are looking to build digital competencies through new hires.

 However, a lack of skilled talent is a major cause for concern, especially in those in areas of the world where talent shortages have been exacerbated by skills flight, such as Brazil and Mexico. Even in the US, 20 per cent of business leaders consider this to be the greatest risk to growth – an 8 per cent increase from 2017.

 

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 per cent) 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 per cent of respondents led by French CEOs, half of whom (50 per cent) place it in pole position.

Meanwhile, women-led companies are significantly affected by a lack of funding, with nearly one in five (18 per cent) citing access to capital as a major barrier to growth, compared to 11 per cent of their male-led peers. Furthermore, one in five women-led companies have no funding plans, compared to just 3 per cent 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.”



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