Small and medium sized businesses (SMEs) around the world are confident about their future business performance, optimistic about the economy and believe they have the strategies in place to thrive in an age of uncertainty, according to American Express.
The financial services carried out its research among 3,205 senior executives and decision-makers in SMEs – classified as a business with between 10 and 250 employees and revenues of up to US$30m – across 15 countries. It reveals that SMEs are confident in their ability to deliver increased revenues and profitability.
The American Express Global SME Pulse was carried out in October and November 2016, by Oxford Economics, which conducted telephone interviews in Argentina, Australia, Brazil, Canada, China, France, Germany, India, Italy, Japan, Mexico, Singapore, Spain, the UK and the US.
Globally, across regions as diverse as the Americas, Asia and Europe, 58% of SMEs surveyed expect significant revenue growth over the next 12 months. Reflecting the global optimism, 50% of the 300 UK SMEs surveyed anticipate revenue growth of at least 4% over the next 12 months, despite uncertainty over Brexit. Furthermore, 16% of these look forward to revenue growth of at least 8% over the same period.
In terms of profitability, the UK’s SMEs are similarly upbeat with 57% forecasting a net profit of 4% per annum over the next three years, while 22% forecast net profit in excess of 8% over the same period.
More broadly, SMEs across the globe are optimistic about the health of the world economy over the next 12 months, with SME decision-makers more than twice as likely to be positive than negative about the economic climate (39% positive versus 16% negative). The UK is similarly upbeat, with decision makers likely to be positive about the global economy. Looking domestically, this optimism is replicated at a local level with SME leaders in the UK almost twice as likely to be positive than negative about the state of the UK economy over the same period.
Economic and political uncertainty seen as key challenges
While SMEs are optimistic about the economy and their own business, they also identify areas for concern. Economic uncertainty in their home market is seen as the largest threat to the business both globally and in the UK. Domestic political uncertainty is a further concern for 28% of UK SMEs.
Meanwhile 35% of SMEs based in the UK identify uncertainty in their European export markets as a leading threat to the business’s performance. The survey, conducted after the Brexit vote last June, found UK SMEs are more concerned about this threat than their peers in other European markets where the proportion of SMEs seeing this as a concern ranges from 24% (Spain) to 32% (France).
Focus on expansion and sales growth to drive financial performance
Despite uncertainty, SMEs globally and in the UK are focusing on growth and expansion strategies to improve their financial performance. Forty-three percent of UK SMEs say expansion into new domestic markets will be a top priority for their business over the next three years, while 33% make growing their share of current markets a key focus.
Alongside these growth-focused strategies, UK SMEs will look to increase operational efficiencies to help achieve their financial objectives: 35% say this will be a key driver of their financial performance over the next three years.
Increasing exports part of the growth push
Exporting is a core pillar of many SMEs’ growth strategies globally and the UK is no exception: 32% of UK SMEs identify expansion into new international markets as a pathway to improved financial performance over the next three years. Many UK SMEs are confident they are ready for export growth, with 47% strongly believing their company has the right plans in place to increase export sales. Furthermore, half of the UK SMEs surveyed agree it is easier to access new export markets than it was three years ago.
Confidence among UK SMEs about exporting is reflected in their turnover projections: the number generating at least half of their revenues from exports will more than double, from 21% today to 44% over the next three years.
Seek more diverse sources of finance to fund growth
Many UK SMEs struggle to finance the investment required for growth; 57% say they face difficulty accessing the finance they need to grow their business while 60% say that inadequate cash flow affects their ability to pay suppliers on time.
UK SMEs today rely on existing working capital (54%), bank loans (48%) and private equity (37%) to fund their investment. Over the next year, SMEs plan to continue to take advantage of a diverse set of funding options. Their existing top options will remain important, but many will also look to non-bank sources of finance such as crowdsourcing and cards to gain access to capital to grow.
Look beyond the short term
As part of the research, top managers in UK SMEs were asked about the long-term goals of the business. While profit margin growth (54%) and revenue growth (47%) are identified as the main two objectives, 28% of UK SMEs state that sustaining the business for future generations is an important long-term goal. They are more likely to take this long-term view than SMEs in the rest of the world – 23% of respondents outside Europe ranked sustaining the business for future generations as a top objective – which demonstrates the important contribution these businesses make to the UK’s economy.
“It’s very encouraging to see this evidence of optimism and self-confidence among UK SMEs,” commented Jose Carvalho, senior vice president, global commercial payments Europe at American Express. “Businesses are deftly navigating through challenges and this resilience is helping them to thrive.
“The research shows SMEs are focusing on expansion and growth opportunities, reaching out to new markets and customers at home and globally. However, it’s clear these enterprising businesses often find it difficult to access the finance they need to invest, and as a result they’re looking beyond traditional sources to secure funds to enable them to thrive and grow in the long term.”
‘The Global SME Pulse: Strategies for Success in an Uncertain World’ will be published later this year by Oxford Economics and examines the operating strengths that enable SMEs to thrive.
Priority areas for investment by UK SMEs for the next three years:
- Quickly responding to changing business demands (79%).
- Applying the latest technology (63%).
- Developing and implementing innovations to business models, products and services and ways of working (60%).
Getting closer to customers is a priority for UK SMEs:
- Sixty-two percent agree their customers are demanding more new or tailored products and services.
- Fifty-one percent say understanding changing customer demands is a key strategy for revenue growth.
- UK SMEs see customer insight as the key to successful innovation: over 64% say incorporating customer feedback into the research and development (R&D) process allows them to improve their innovation.
The top five sectors Asian fintech investors are interested in are data analytics, blockchain, lending, payments and regtech, according to Gary Hwa, EY regional managing partner.
On the third day of the Singapore Fintech Festival conference, there was a focus on specific applications of fintech innovation. One was trade finance, which is clearly is ripe for a revolution.
Kicking off day two of the Singapore Fintech Festival, Deloitte Chairman David Cruikshank said that fintech is significant for three reasons. First, customer expectations of services are higher than ever. Second, barriers to entry are lower than before. And finally, financial institutions (FIs) face a threat of what a competitor might do.
The EU and US’ shift in accounting standards may bring balance sheet losses and increase credit risk, according to James Elder, director of risk services at Standard & Poor’s (S&P) Global.