International expansion accelerates the growth of European medium-sized companies and generates optimism for the next 12 months

International expansion accelerates the growth of European medium-sized companies and generates optimism for the next 12 months

86% of European medium-sized companies expect revenue growth of over 6% over the next 12 months.

The European medium-sized companies are looking optimistically over the next 12 months, anticipating to harvest the fruits of their ambitious development plans - results from the annual study EY Growth Barometer: Europe.

Encouraged by the highest confidence in Europe since the 2007-2008 global financial crisis, CEOs of medium-sized European companies intend to capitalize on this situation and are not impressed by the general concern caused by the proliferation of nationalist feelings and other geopolitical uncertainties, including the intensification of trade tensions.

The annual study, which was answered by 863 executives from medium-sized companies in eight European countries, found that nearly two-thirds of respondents (62%) forecast a 6% to 10% increase in revenue, which represents an annual increase by 38 percentage points, while another 24% is targeting an increase of 11% -15% over the next 12 months, which is equivalent to an annual increase of 16 percentage points.

International expansion is the driving force behind this confidence, with 25% of Europe's leading companies' leaders identifying it as their main development priority.

Andy Baldwin, EY Coordinator Partner for EMEA, said: "European business leaders are preparing for a year of optimistic growth. They appear to be more dynamic and more willing to adapt to change to a greater extent than their counterparts in the world. Europe's medium-sized companies anticipate change and turn their businesses into investing, expanding and embracing technologies and human resources with a high degree of diversity. "

The study finds that development ambitions are at the highest level in Russia and the Netherlands. 38% of middle-sized companies in both countries are planning increases of over 11% over the next 12 months.
Germany and France, the largest European economies, are not far behind, with 31% of medium-sized companies predicting growth of over 11% on both markets.

The proportion of UK companies with medium-sized growths of over 10% is lower (24%), because the uncertainty generated by Brexit continues to impress their expectations.

In terms of international expansion, France ranks first, with 33% of respondents intending to enter a new foreign market. However, in the United Kingdom, only 16% of middle-sized leaders consider extending beyond borders as a priority. According to the study's findings, Brexit continues to have a significant global impact on middle-sized companies in England, which now focuses on increasing market share (21%) and merger and acquisition opportunities (19%) than on international expansion.

Risks to growth

Given the emphasis on cross-border expansion, European middle-class companies consider slower or stagnant global growth to be the main external risk (28% of the sample), 18 percentage points more than 2017 and 4% more than the rest world. This is considered to be a much higher risk than others, such as geopolitical uncertainty (9%) and significant barriers to trade (2%). Among other potential risks, the respondents mentioned the insufficient cash flow, which 37% of CEOs in Europe perceive as the main operational obstacle to growth (up 22% from 2017).

 Andy Baldwin mentioned: "Although Brexit continues to define its outlook, especially in the United Kingdom, the critical issue for the European market is sustained global growth. As long as the political measures do not obstruct global economic growth, the leaders of European companies will remain relatively optimistic. "

Embrace and understand technology

The study also found that technology represents the most significant change in mid-size companies in Europe in 2018. Last year, 70% of middle-sized companies in the region said they would never adopt robot automation processes today 75% of them say they will adopt artificial intelligence (IA) over the next two years. In fact, 97% of all mid-sized companies in Europe are planning to adopt AI over the next five years, making the region rank first in the world in adopting cognitive technologies and automated learning.

However, few European medium-sized companies include in these change plans an appropriate strategy to combat imminent cyber threats. Only 7% of the region's middle-class leaders are investing in technologies that reduce cyber risks and only 5% believe that cyber threats are an important obstacle to development.

Workforce Plans

By proving optimism about revenue growth, more than one-third of executives of medium-sized European companies (37%) intend to make full-time employment and no one intends to reduce their workforce. Respondents consider attracting human resources with the right skills (33%) as the main factor in accelerating growth and say that an improved organizational culture will attract first and foremost young people with native digital skills (36%). In line with massive global change, 42% of European medium sized executives consider diversity as the main strategic recruitment priority, which represents a 29% increase compared to 2017.

"We live in times when the world is reforming at a faster pace than ever, and accelerated digitization makes us make important changes. Company leaders will need to develop robust IT security strategies along with their plans for adopting artificial intelligence. At the same time, as growth is increasingly based on technology, the race for recruiting talented people becomes vital to remain competitive, "said Bogdan Ion, Country Managing Partner EY Romania.