European middle-market organizations forecast their growth to outpace the eurozone over next 12 months

3 mins read

The FINANCIALBusiness confidence is high among European middle-market organizations, despite geopolitical uncertainty within and outside Europe, demographic shifts and rapid digitization across sectors according to analysis released on September 19 in the EY Growth Barometer: Europe. 

The study reveals that almost four in ten (38%) European middle-market companies are targeting current year growth of 6% to 10% and nearly one in four (24%) are looking at revenue growth rates of more than 11%. The projections are significantly above World Bank forecasts of GDP growth for Europe and Central Asia of 1.9% and 2016 actual GDP growth in the eurozone of 1.8%.

These and other findings are the result of an in-depth survey of 642 executives from European middle-market organizations, defined as companies with annual revenues of US$1m to US$3b, and from across 12 selected key European economies: Belgium, Finland, France, Germany, Italy, Netherlands, Poland, Russia, Spain, Switzerland, Turkey and the United Kingdom. The study’s analysis examines European markets and builds upon its sister report, the EY Growth Barometer: Global Highlights, which surveyed 2,340 middle-market executives from across 30 countries globally.

Andy Baldwin, EY Area Managing Partner – Europe, Middle East, India and Africa, says:

“There is a real sense that middle-market businesses in Europe have finally shaken off the last of the effects of the financial crisis. They have strengthened their balance sheets, are embracing new opportunities presented by digitization and recognize the central role of innovation and purpose in driving growth and attracting talent.”

Growth outlook and challenges

Across Europe, nearly four in ten (38%) companies are looking at growth of 6% to 10%, while just less than one-third (31%) of middle-market organizations are targeting growth of 1% to 5%. The survey finds that the most bullish countries include those in emerging markets. Thirty-one percent of respondents from Russia and 26% from Turkey are planning to grow revenues between 11% to 25%. Meanwhile mid-sized companies in the UK are positive about growth despite the uncertainties around Brexit with 25% of respondents also in this upper revenue growth band.

See also  Why Invest in a Solar Powered Generator for Camping? 

Twenty percent of executives across Europe identified both new geographic market entry and M&A activity as the top growth priorities for the region, suggesting the continued reliance on Europe’s free labor market and strong economic interdependencies.

The top three challenges to growth cited by European respondents are technology disruption (18%), sluggish demand (16%) and insufficient cash flow (15%). The fourth is lack of skilled talent (13%), reflecting a similar ranking from the global highlights response (14%).  

Talent and hiring plans

European organizations, like their global counterparts, are continuing to hire full time staff to meet growth expectations, but are increasingly embracing flexible and mobile talent pools more broadly than their global peers. Twenty-seven percent of European companies plan full-time headcount increases (compared to 28% globally); however, 39% of companies plan to hire more part-time staff and contractors, compared to 30% in the rest of the world.

Baldwin says: “It is encouraging to see European middle-market leaders embrace the flexibility of the gig economy. Technology, in particular, is enabling middle-market companies to access global talent pools and expand internationally much quicker than ever before. As economic growth is increasingly driven by technology, the race for talent will become more and more vital to competitiveness.”

RPA doesn’t spell RIP to human talent

Middle-market organizations in Europe and around the world have not widely adopted robotic process automation (RPA). Seventy-three percent in Europe and 74% of respondents in the rest of the world respectively have not yet adopted this technology. However, Europe is showing signs of waking up to the transformative potential of RPA with 7% of respondents already early adopters and a further 21% of executives plan to adopt the technology over the next decade. By sector, financial services companies are outliers and proving to embrace innovation more aggressively, with almost half (48%) either having adopted RPA already or are planning to do so in the next two to five years.

See also  High-performing managers set harsher targets

Megatrends, risks and opportunities

With an aging population and possible new barriers to the European Union’s free labor market, more than a third (35%) of European business leaders see demographic shifts as having the biggest impact on their enterprises, ahead of technology (23%), shifts in working patterns (22%) and globalization (21%). In common with middle-market leaders across the world, they cite increasing competition (20%) as the greatest risk to growth, ahead of geopolitical instability (16%), regulation (14%) and the cost and availability of credit (12%).

Baldwin says: “Macro uncertainties are increasingly accepted by business leaders as forces we have to learn to live with, like the weather. But the key challenge for many middle-market organizations is not diagnosing or identifying the market trends, but rather one of execution and change. Organizations that are the most quick, nimble and agile will continue to find the opportunities for growth.”

 

Leave a Reply