Global middle market organizations are not showing signs of slowing down in the face of geopolitical uncertainty, reports accounting firm EY in its inaugural EY Growth Barometer report.
A third (34%) of the surveyed 2,340 middle market executives, those who work in companies with annual revenues of US$1 million to US$3 billion, say their organization plans to grow 6%-10% this year. What’s more, 14% are aiming for more than 16% rise in sales.
The company expectations are far ahead of the World Bank’s forecast growth for the global economy, which at 2.7% in 2017 is at least 3.3 percentage points lower than corporate growth ambitions.
“The global economic backdrop is much stronger than what the prevailing narrative has been telling us,” says Annette Kimmitt, EY Global Growth Markets Leader.
“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.”
Indeed, 89% of those surveyed says the uncertainties are ground for growth opportunities for their company.
Four out of ten companies in China and India (42%) are targeting growth rates of 6%-10% this year, with a quarter looking at growth plans of 11%-15%. That’s in contrast to the United States, where slightly more than a third of all companies plan modest growth increases of under 5%.
Risks to growth
Middle market leaders cited increasing competition (20%) as the number one external threat to their growth plans, followed by geopolitical instability (17%). and the cost and availability of credit (12%).
These threats were considered far more significant than financial headwinds of rising interest rates (8%), foreign exchange variance (8%), or commodity price volatility (6%).
Leaders were twice as likely to cite competition (20%) as a risk than slow global growth (10%).
Talent and technology
Executives identified technology and talent not only as the top two challenges facing the middle market C-suite today, but also as the tools by which they will overcome challenges and remain agile.
Talent (23%) is cited as the top priority ahead of improved operations (21%), cutting red tape (12%), and beneficial agreements (8%) in a ranking of what is critical to meeting current growth ambitions.
More than nine out of ten executives regard technology as a means of attracting the talent they need. The respondents say new developments in artificial intelligence (AI) are improving the recruitment and selection process for innovative start-ups to find specialist talent.
To fuel the growth ambitions of their organizations, more than a quarter (27%) of middle market executives plan to increase their permanent headcount and a further 14% plan to increase the number of part-time staff.
Reflecting the growing impact of the gig economy on work patterns and a move to a more contingent, skills-based workforce, almost one in five (18%) companies plan to use contractors to help power their high-growth plans and fill specific gaps or needs.
Hiring and automation
However, under these global results lie significant differences in hiring plans. A majority of US companies (55%) plan to keep current staffing levels flat, compared with 31% of all respondents.
These plans are almost reversed among start-ups, 53% of which plan increases in full-time staff. Nearly a quarter (23%) of all start-ups are also the most likely of all organizations to plan to hire more contractors or freelancers.
“Middle market leaders are using technology to attract and retain talent, accelerate growth, improve productivity and increase profitability,” observes Kimmitt.
“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.”
While only 6% of middle market organizations are already using robotic process automation (RPA) for some business processes, 15% of respondents believe that adoption of RPA will result in headcount reductions of less than 10%.
This indicates that middle market leaders are planning on the selective adoption of RPA to bring efficiencies to some routine operations, but as an adjunct to human talent, not a replacement, says EY.
The research also surveyed 220 alumni of EY's Entrepreneur Of The Year® program, which operates in more than 60 countries and 145 cities worldwide.
These high-growth entrepreneurs are planning significantly higher growth rates than overall middle market leaders, with one in five planning to grow by 6%-10%, a further 20% by 11%-15% and one in five by 16%-25%.
Nearly one in four (22%) high-growth entrepreneurs are planning current year growth of more than 26%. Additionally, almost two-thirds (61%) of this group plan increases in full-time staff and 9% plan increases in the use of contingent or gig economy workers.
“Middle market companies are the engines for global growth, representing nearly 99% of all enterprise and contributing nearly 45% to global GDP,” says Kimmitt. “But high-growth entrepreneurs are not only more ambitious in setting growth targets, but prioritize differently from other mid-market leaders and businesses.”
“High-growth entrepreneurs are not fazed by the kinds of seismic shocks that Brexit and other geopolitical upheavals present. They are developing agile and flexible strategies to work with uncertainty as the new normal."