Global Research Surveyed Over 1,000 Small and Midmarket Executives
WALLDORF, Germany — According to an Economist Intelligence Unit survey sponsored by SAP AG (NYSE: SAP), small and midsize enterprises (SMEs) in emerging countries are expanding and flourishing financially while their counterparts in the developed markets — despite more difficult market conditions — are confident of an economic upswing in the near future. Finding and keeping new customers, attracting talent and operating efficiently stood out as top challenges worldwide, while companies in emerging markets see effective use of technology as a key priority in achieving growth. The announcement was made during European SME Week, being held in Brussels from October 15-21, 2012.
Asked about their top business priorities for the next 12 months, respondents in developed and emerging markets appear to share broadly similar goals: growing sales and earnings. Fifty-three percent of those in developed markets and 55 percent of those in emerging economies cite growth as a top business priority. In India, the figure is 76 percent and in the UK, 71 percent. The lowest showings are in France, at 25 percent, and Russia, 35 percent.
SMEs Expect Their Businesses To Grow
SMEs expect to support growth plans by hiring additional staff. Of those surveyed, 94 percent stated that revenues remained flat or increased over the last three years. Twenty-eight percent reported increases of more than 10 percent and 39 percent responded with up to 10 percent growth. Looking ahead, 96 percent of respondents expect either a flat or positive revenue development over the next 12 months.
The research was based on a survey with more than 1,000 executives of SMEs, with an annual turnover of US $20-$750 million, and on a series of in-depth interviews with senior managers of SMEs. Respondents and interviewees came from developed economies of France, Germany, Japan, the UK and the U.S. and emerging economies of Brazil, China, India, Mexico and Russia.
“We believe that especially in today’s economic climate, entrepreneurs and small to midsize businesses make up the backbone of the economy — they have the ability to drive innovation, job creation and economic stability,” said Eric Duffaut, president, Global Ecosystem & Channels, SAP AG. “SAP understands the needs of entrepreneurs and small to midsize businesses, and our dedicated portfolio of business software offers them the best practices, flexibility and choice they need to adapt, innovate their business model, grow effectively and profitably and, ultimately, become better-run businesses.”
Expansion Beyond Home Markets
Asked about their business priorities for the year ahead, SME managers in all surveyed economies said that expanding their business into new markets is one of their top business priorities. Twenty-eight percent of the executives interviewed in developed countries strongly agreed that they have to enter foreign markets to keep their competitive edge. In comparison, 22 percent of respondents in emerging economies believe that is the case.
“The survey findings are significant because they reveal a high degree of confidence among managers of SMEs that they can achieve growth in the period ahead,” said Christopher Watts, a contributing editor of the Economic Intelligence Unit and author of three articles analyzing the online survey. “Given the critical role of SMEs in driving both developed and emerging economies, this confidence is a very positive signal.”
Key findings of the survey include:
- Government support crucial for growth: SME executives indicate the most significant obstacle in the external business environment is government bureaucracy and regulation — 88 percent cite this as an obstacle. The growing tax burden is also a significant concern (85 percent). Executives in emerging markets are more likely to cite government or legislative issues as an obstacle than those in developed countries.
- Sales and earnings top business priority: Growing sales and earnings is cited as a top priority by 60 percent of smaller companies and 47 percent of midsize companies.
- Obstacles to growth: According to respondents, the three main internal obstacles to growth were finding and keeping new customers (79 percent), hiring and retaining people with the right skills (78 percent) and operating the business efficiently (76 percent).
- Internationalization: The biggest business opportunity cited by respondents is expansion into new markets or expansion of the markets themselves, especially high-growth markets such as China and Brazil. Sixty percent of respondents agree that they need to compete in more international markets.
- Leveraging IT critical in emerging countries: Becoming more efficient and using technology more effectively over the next year is among the top three priorities of those surveyed. Forty-six percent cited using technology more effectively as a business priority. In emerging countries this is especially important with India (72 percent), Brazil (75 percent), Russia (33 percent), China (44 percent) and Mexico (33 percent). Accordingly, 60 percent of respondents say they are automating more tasks and functions now than three years ago.
- Difficulty accessing capital: Fifty-six percent of executives say they have become more concerned about debt in the past three years and 46 percent say they have become more worried about access to financing. Executives in emerging markets are more likely than those than in developed markets to cite these concerns. Among smaller companies, 34 percent say limited access to financing is a major obstacle, while among midsize companies, the figure is 23 percent.
- Steps to grow the business: The measures that SMEs are taking to exploit their business opportunities include securing new financing (40 percent), hiring outside experts (33 percent), gathering information and market data (31 percent) and increasing or redirecting spending on training (31 percent).
About This Research
To find out the main obstacles to growth among small and medium sized companies, as well as their biggest growth opportunities, the Economist Intelligence Unit (EIU) conducted a survey of 1072 senior managers in five developed and five emerging markets across the world in July and August 2012. The developed economies included in the survey are France, Germany, Japan, the United Kingdom, and the United States; the emerging economies are Brazil, China, India, Mexico and Russia. The companies surveyed all report annual revenues under $750m; around three-quarters of all respondents (76 percent) represent firms with revenues below $250m; just over half (52 percent) represent companies with revenues below $100m. In addition, the EIU conducted an interview program with senior managers of SMEs in developed and emerging economies, with annual turnover between $2m and $400m.
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