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International business report (IBR)

Record number of mid-market businesses expect increase in profitability

Profitability increases as investment in technology reaches new highs

The resilience of the global economy has been highlighted by a record number of mid-market business leaders expecting an increase in profitability (up two points to 62%) over the next 12 months, with 53% expecting to increase their selling prices (up three points), according to Grant Thornton’s latest International Business Report (IBR).

This bullish outlook saw optimism rise one point to 66%, despite forecasts indicating global GDP growth will remain below historic averages. The uncertainty created by a record number of people voting in national elections this year along with the ongoing challenges posed by above target inflation and higher interest rates, are thought to be weighing on growth forecasts.

Why then are mid-market business leaders so bullish about the prospects for their businesses? It could be driven by the record number of respondents expecting to increase their investment in information technology (up five points to 66%), and a record number of respondents expecting to increase investment in research and development (up three points to 55%). 

With both selling prices and profitability expected to rise – absorbing any long-tail inflationary pressures – and optimism remaining high, businesses clearly have the confidence to invest. 

With all the hype around AI and its potential impact on business, it is little surprise that business leaders are opting to invest in this potentially transformative area.  However, this is not likely to lead to mass job cuts. A record number of respondents also expect to increase investment in their people (up two points to 58%). This would suggest that investment in technology sits alongside investment in talent and that a combination of both is needed to deliver sustainable growth.

Despite a gloomy geo-political outlook, businesses are also more hopeful about their own international prospects. A record number of respondents expect an increase in revenue from non-domestic markets over the next 12 months (up three points to 45%). Those expecting exports to increase is also up four points to 47% and those expecting to increase the number of countries they sell to is up two points to 42%. 

Business constraints 
There is, however, no getting away from the gloomy geo-political situation. Economic uncertainty remains the largest constraint cited by business leaders (down one point to 56%). Those citing the availability of skilled workers is up three points to 53% and concerns over labour costs is up two points to 53% - highlighting the challenge posed by persistent or sticky inflation as it has been labelled.

Pressure from energy costs appears to be easing, with those citing it as a constraint down one point to 51%.

Businesses may not be investing in technology solely for productivity reasons. With 50% of business leaders citing cybersecurity as a constraint, it may also be a defensive investment as cyber-attacks become more frequent and sophisticated.

Surprisingly, shortage of finance is the least cited concern for business leaders, remaining static at 40%. This may be explained by more businesses holding excess cash on their balance sheet according to research by the Harvard Business Review, which acts as a form of insurance against adverse events.

Peter Bodin, CEO of Grant Thornton International commented: “Our latest IBR findings highlight the continuing resilience of the global economy and of the global mid-market. It’s clear that, with improving profitability, CEOs are targeting investment in innovation, whether through R&D or technology, to win market share in a flat global economy. The pressure is clearly on business leaders to make the right investment choices to make sure they are not left behind by competitors – or their customers. Relying on what has always worked in the past may no longer be good enough if AI delivers the transformation some predict it will.

“With a global surplus of alternative financing and record-high cash reserves, our data highlights that concerns regarding finance shortages have also waned. The value of maintaining cash reserves to navigate unpredictable market conditions could now be put to the test.

”Despite the ongoing uncertainty created by geopolitical tensions and a record number of national elections, businesses simply cannot afford to do nothing. Those business leaders prioritising strategic investment and operational resilience to optimise their operations will be best positioned for success.” 

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Campbell McIlroy
Director global communications

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