Optimism among mid-market businesses globally has slumped six percentage points in Grant Thornton’s latest International Business Report, dropping from 70% to 64%.
While optimism remains high against historic levels, mid-market businesses are certainly conscious of the challenges they face with 63% citing economic uncertainty as the major constraint facing them. This is closely followed by energy costs (62%) and labour costs (57%).
Despite these very real constraints and what the International Monetary Fund’s recently described as a ‘gloomy and more uncertain’ economic outlook, the desire among mid-market businesses to expand internationally seems undented.
Export expectations remain near record highs, with 44% of mid-market respondents anticipating increases in the next 12 months. Likewise, 42% expect to increase both their international revenue and the number of countries sold to, with 58% of respondents expecting total revenue to increase in the next 12 months.
“Whether the drive to expand into new markets is by design or out of necessity due to geopolitical factors beyond their control, international expansion for the mid-market has definitely shifted a gear as companies continue to seek new sources of revenue.” says Peter Bodin, global CEO at Grant Thornton International Ltd. “But building a sustainable long-term strategy requires a clear understanding of the different dynamics in each market. Those dynamics might be the regulatory environment, a different business culture, how to access funding or finding the local support necessary to launch in a new market. Businesses need to make sure they understand the whole picture and how best to execute their plans, despite the current challenges.”
While some governments announce support programmes to tackle rising energy costs and, by default, economic uncertainty, it is easy to see why labour costs are seen as a constraint for businesses with 83% expecting to increase salaries in the next 12 months. There is, however, a limit to what businesses can afford with only 22% of businesses indicating they intend to offer above inflation salary increases.
“In building resilience, there are lessons that can be drawn from how businesses responded to Covid-19,” says Dave Munton, global head, international business support for Grant Thornton International Ltd. “It’s about scenario planning, doing the basics well, building resilience and not taking too many risks. Businesses need to do less, better.”
Despite these constraints, mid-market businesses are still investing with technology once again topping the list with 60% expecting to increase investment in this area over the next 12 months – equalling the record set last year. This is followed by investment in research and development (55%) and staff skills (55%).
While investment in new buildings remains bottom of the list with 40% expecting to increase investment over the next 12 months, this is a still a record high since we first started collecting mid-market data in 2011. It is well above the long run average of 26% - possibly explained by businesses having to invest in new hybrid working models.
In light of mid-market’s desire to expand internationally, Grant Thornton has identified four key trends in a new international trends article it has published today following analysis of its IBR data. The trends are:
You can read the full article here on Grant Thornton’s website.
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